Facebook's current market value is estimated at $350 billion. Given its sustained success, Facebook may be in a better position than most companies to deal with the rigors of an audit. With this said, it could be facing a tax debt of many billions of dollars. In a quarterly report released last month, Facebook revealed the IRS claimed it owed between $3 billion and $5 billion. This figure does not include penalties and interest.
IRS audit reveals possible tax deficiencies from overseas restructuring
The IRS alleges these deficiencies stem from discrepancies in value from a business restructuring that took place in 2009 and 2010. In this restructuring, Facebook's Irish subsidiary received the rights to the company's user base outside of the United States and Canada. It also received Facebook's online platform. The problem, at least according to the IRS, was that Facebook and its tax advisor, Ernst & Young LLP, did not correctly establish the value of the online platform and in fact dramatically undervalued the platform. Facebook disputes the IRS's contention and will appeal the deficiency in U.S. Tax Court.
Facebook has failed to provide documentation to the IRS on multiple occasions
The IRS has requested documents pertaining to the Irish restructuring at least twice. To date, Facebook has refused to provide these records. In July, the IRS petitioned a federal court in California to compel Facebook to turn over documentation relating to the transaction. Right now, this dispute appears to be headed for lengthy litigation. However, this dispute is eventually resolved, it highlights the importance of properly valuing business assets for tax purposes.
Any business undergoing an audit needs to retain the services of skilled legal counsel at the earliest opportunity. For years, businesses across New York, the United States and the world have placed their trust in the attorneys of Goldburd McCone LLP.
Source: Facebook Estimates Tax Bill of Up to $5 Billion From IRS Audit, Bloomberg BNA, July 29, 2016, by Dolores W. Gregory