IRS Takes Facebook To Court, Signaling Start Of Tougher Approach

Details

Publish Date:
July 8, 2016
Author(s):
  • Lynnley Browning,
  • Kartikay Mehrotra
Source:
Wealth Management (Bloomberg)
Related Person(s):

Summary

Signaling a shift in enforcement tactics against big companies that make money from intellectual property, federal tax officials have sought a court order demanding internal corporate records related to one of Facebook Inc.’s offshore tax strategies.

Arguing that the social-media giant missed a deadline last month to turn over such information, the Internal Revenue Service filed a petition July 6 in San Francisco federal court seeking documents and records for the 2010 tax year. That year, Facebook shifted the global rights for many of its intangible assets — outside the U.S. and Canada — to a subsidiary in low-tax Ireland. The IRS claims that, for tax purposes, the company understated the value of those assets by billions of dollars.

If the IRS beats that deadline with a so-called “notice of deficiency” for underpaid taxes, the company will likely be forced to comply with any court order, said Michael Asimow, a law professor at Stanford University. It’s not clear when the court would rule on the IRS’s petition, which doesn’t mention any notice of deficiency.

Without such a notice, Facebook could successfully dispute the summons, Asimow said. But with one, “the IRS virtually always wins,” he said.

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