Facebook gets $3B to $5B IRS tax bill

IRS notice of deficiency stems from company’s asset transfer to Ireland

Facebook is facing potential new U.S. tax liabilities related to its transfer of its global operations to Ireland in 2010.

The Internal Revenue Service delivered a notice of deficiency to the social media giant Wednesday for $3 billion to $5 billion, plus interest and penalties based on the agency’s audit of Facebook’s transfer pricing, the company said in a filing Thursday to the Securities and Exchange Commission. Facebook said it plans to challenge the notice in federal tax court.

Meanwhile, the IRS on Monday asked a federal magistrate judge in California to force the company to turn over detailed internal corporate records related to the value of the assets moved to Ireland. They included operations outside the U.S. and Canada.

“Facebook complies with all applicable rules and regulations in the countries where we operate,” Bertie Thomson, a Facebook spokeswoman, said in an email.

The IRS claims Facebook’s tax adviser Ernst & Young undervalued the company’s property as it was transferred to Facebook Ireland Holdings by evaluating pieces of the online platform separately, according to court filings. Facebook employees told the IRS that the property was “interdependent,” and that ”it would be difficult to isolate one from the other,” the government said.

“I don’t think Facebook is necessarily hiding anything, but it’s a fight over pricing,” said Stephen Hamilton, a tax lawyer in Philadelphia. “This is what companies do when they transfer their own assets; they try to value them as low as possible and when the issue is litigated, they usually end up somewhere in the middle.”

“This is what companies do when they transfer their own assets; they try to value themas low as possible and when the issue is litigated, they usually end up somewhere in themiddle.” — Stephen Hamilton, tax lawyer