If the Internal Revenue Service (IRS) finds that something may be fishy when it comes to how much money a person or business has made, it will stop at nothing to make sure that the accurate amount of taxes are paid. And no one is exempt from this, not even the largest social network in the world.
The IRS is taking steps to make sure that Facebook complies with its ongoing investigation into the company by filing a petition in court on July 6 that may force it to do so.
Facebook has been under investigation by the IRS starting back in 2013 because of its 2010 tax return. The IRS believes the company may have understated the value of property that was transferred to a subsidiary in Ireland.
Shifting assets to other markets outside of the U.S. is a common practice by many tech companies of Silicon Valley, especially since Ireland's corporate tax rate is significantly lower than the rate in the U.S. However, this doesn't mean they are exempt from the law. Companies like Apple and Microsoft have been under the scrutiny of the IRS for its tax records in relation to foreign assets in the past.
According to the lawsuit filed by the IRS in U.S. District Court in San Francisco, Facebook made an agreement with Facebook Ireland Holdings Unlimited to transfer the rights to certain assets include its "online platform and marketing intangibles." The agreement was made back in September 2010 and handled by the accounting firm Ernst & Young, who the IRS believes wrongly valued these assets by "billions of dollars."
The IRS claims that it has issued six summonses last month to have Facebook hand over the records from the Ireland asset transfer by June 17, but the company has yet to do so. This is why lawyers from the U.S. Department of Justice's tax division is now seeking help from a judge to help them force Facebook to comply.
"Facebook complies with all applicable rules and regulations in the countries where we operate," a spokesperson for the company stated.
Along with trying to get down to the bottom of whether Facebook's Ireland assets were undervalued or not, the IRS is also looking for Facebook to produce documents for its budget goals and why exactly it made Dublin its international headquarters.
The statue of limitations on the suit runs out on July 31.