Bay Area Estate And Tax Planning Law Firm

IRS continues to pursue Facebook over foreign asset transfers

On Behalf of | Jul 10, 2016 | Uncategorized |

Over the last few years, multiple U.S. companies have come under heavy criticism by federal officials for their reliance on elaborate tax-savings strategies, such as inversions. For those unfamiliar with inversions, they involve U.S.-based companies merging with companies located in tax-friendly nations, and subsequently establishing their new corporate headquarters there in a bid to escape corporate income taxes in the U.S.

In addition to inversions, many companies — particularly tech companies — have come under fire for a strategy whereby they essentially park their assets in subsidiaries located in foreign tax havens only to have these subsidiaries license these assets — typically intellectual property — back to them. This, in turn, serves to reduce their profits and, by extension, their federal tax bill.

Interestingly enough, the social media giant Facebook was audited by the Internal Revenue Service for a similar practice back in 2010. Specifically, it transferred the rights for its worldwide business — excluding Canada and the U.S.  — to Facebook Ireland, including its intellectual property assets such as its online platform, user base and so-called “marketing intangibles.”

Here, the IRS audit came about after agents formed a suspicion that the accounting firm retained by Facebook to value these intellectual property assets could have undervalued them by “billions of dollars.”

In recent developments, the IRS actually filed a petition against Facebook in the U.S. District Court for the Northern District of California earlier this week relating to this matter.

Here, it was seeking an order to enforce six different summonses originally requesting that company officials appear at the agency’s San Jose-based offices back on June 17 with documentation relating to this matter. Facebook failed to show up.

While the court has yet to decide the matter, legal experts point out that the statute of limitations on the issue is going to expire on July 31, such that it will be necessary for the IRS to either move quickly or propose a substantial audit adjustment.

Stay tuned for updates …

If you have questions regarding your rights and responsibilities under both state and federal tax laws, consider speaking with an experienced legal professional.