Facebook Under Investigation By The IRS [Breaking]
According to a breaking news report by CNN Money, social media giant Facebook is currently the subject of an IRS investigation. The U.S. Justice Department reportedly filed a petition in court on Wednesday that would force Facebook’s compliance. The IRS began its investigation into Facebook’s money matters in 2010.
“The issue dates back to 2010, according to the IRS, when Facebook shifted the rights for its worldwide business, excluding the U.S. and Canada, to Facebook Ireland, including certain hard to quantify assets like its ‘user base, online platform and marketing intangibles.’
“The IRS came to believe that Ernst & Young, the accounting firm tasked with valuing the assets in this transfer, may have ‘understated’ the worth of these intangibles by ‘billions of dollars,’ according to a copy of the legal filing provided to CNNMoney.”
IRS investigator Nina Wu Stone said she issued six summons for Facebook “to produce records related to the asset transfer.” Facebook failed to comply with the request. A Facebook spokesperson told Fortune via email the social media brand “complies with all applicable rules and regulations in the countries.” No other statements by Facebook on the petition are available. Both the IRS and U.S. Justice Department declined to comment beyond acknowledging that paperwork had indeed been filed in court.
Facebook is reportedly one of a few social media giants that have come under fire for allegedly seeking out tax havens.
The IRS is investigating Facebook. https://t.co/0BeIprvsDl. pic.twitter.com/k9mUo4FbNG
— CNN Breaking News (@cnnbrk) July 7, 2016
Update 1:11 p.m:
Fortune provided additional insight to the ongoing Facebook lawsuit, which is said to be “getting ugly fast.”
“According to documents the IRS filed in San Francisco federal court, the agency suspects Facebook and its accounting firm, Ernst & Young, understated the value of intangible assets transferred to Ireland by billions of dollars.
“The IRS says it is seeking an order to enforce six summonses that asked Facebook to appear at the agency’s offices in San Jose, Calif., and to produce papers and others records.”
Facebook was due to show up at the “appointed date of June 17,” but it didn’t happen. Facebook also failed to provide the relevant documents as requested. Tech giants like Facebook and Google have increasingly come under scrutiny for allegedly dodging tax obligations.
It’s unknown what the consequences will be for Facebook, if any, as the statues of limitations is winding down.
CNN Money explains the matter at hand.
“The Justice Department’s suit comes as the clock is running down on the issue. The statute of limitations is set to expire on July 31, according to the filing.
“‘Even if the court acts quickly and Facebook produces the information immediately, it is unlikely the IRS will be able to analyze it by July 31,’ says J. Richard Harvey Jr., a law professor at Villanova. ‘Either Facebook will need to agree to extend the statute of limitations or the IRS will likely propose a very large audit adjustment.'”
Fortune insists that the conflict between Facebook and the IRS is set to continue “for the foreseeable future.” Should the IRS find that Facebook purposely undervalued its assets to lower its tax burden, Facebook will no doubt fight the accusation in court.
Ironically, Facebook will be better prepared for a drawn-out lawsuit because of the billions of dollars in assets it has at its disposal. The same cannot be said for the IRS. The agency admitted that its investigation was delayed in part due to “a lack of funding.”
In fact, the timing of this filing is related to that very issue, with the IRS hoping to avoid “overshooting the statute of limitations” after being hindered by funding delays.
What do you think of the IRS investigating Facebook? Will the agency likely find wrongdoing occurred? Please share your thoughts on this developing story below!
[Photo by Matt Rourke, File/AP Images]
