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Tax-related sparring turns to litigation in IRS/Facebook spat

It is certainly no secret that the Internal Revenue Service has had a sharp and unwavering spotlight on American taxpayers with foreign assets and accounts over the past few years.

Media stories have been replete with tales featuring the acronyms FBAR and FATCA, and this blog has consistently sought to keep readers advised and current on matters that might reasonably be of relevance to them concerning money held outside the United States.

Our readers across California and elsewhere well know what we explicitly point out on our Bay Area tax law website at the Law Offices of Connie Yi, PC, namely, that, "Failure to disclose [foreign holdings] can subject you to steep financial penalties and possible criminal charges."

It is worth noting that the above-cited "you" is a quite expansive term when relating to IRS investigations and criminal proceedings.

In a recent CNN article focused upon an IRS/tax filer spat, for example, the agency's investigatory target turns out to be Facebook.

Obviously, that is about as big as it gets.

Facebook is clearly not relishing the attention. Reportedly, company officials have ignored seven agency summonses recently that seek information related to the Internet giant's financial dealings with a subsidiary it established in Ireland in 2010.

Facebook has consistently contended that its Irish operations are legal and that it has not circumvented any American tax laws by having worldwide revenues flow into that country rather than into the United States.

Unsurprisingly, the IRS sees things differently, believing that the valuation of various assets transferred to Facebook Ireland have been understated, equating to a purposeful attempt to unlawfully dodge U.S. taxes that are owed.

Facebook is fighting back against that contention. In a recent SEC filing, the company cites its intention to challenge the IRS on the matter in the United States Tax Court.

It is estimated that a tax penalty assessed by the IRS against Facebook could potentially total as much as $5 billion.

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