The Justice Department is asking a federal court to force Facebook to comply with an Internal Revenue Service request for information about the social networking giant's asset transfer to its Ireland international headquarters.
The request is part of an IRS investigation into Facebook's federal tax liability for the period ending Dec. 31, 2010 and a "problematic" auditing approach that, the IRS says, could have understated by "billions of dollars" the value of the transaction and could affect the company's tax liability.
That 2010 tax return reported royalty income from "transfers of intangible property" relating to Facebook's international business to Facebook Ireland from Facebook U.S., according to court documents filed Wednesday in U.S. District Court for the Northern District of California. The case was first reported by Law.com.
Those intangibles involved the transfer of Facebook's international user base beyond the U.S. and Canada, the online platform, its future development and costs, as well as marketing intangibles, the court filing says. IRS Investigator Nina Wu Stone, in one of the documents, expressed concern that Ernst & Young auditors “understated by billions of dollars” the transferred intangibles.
While auditors attempted to value "the user base, online platform, and marketing intangibles" on a "stand-alone basis," the IRS found by interviewing Facebook employees that those were "interdependent and ... would be difficult to isolate," Stone wrote.
Facebook has been cooperating with the IRS investigation, which goes back to 2013. But attorneys from the Justice Department's tax division are asking the court to make Facebook comply with six IRS summons for information, issued June 1, that were not met by the June 17 compliance date.
In her declaration, IRS investigator Stone noted that the statute of limitations expires July 31 for the tax liability issue.
In a statement to Law.com, a Facebook company spokesperson said: “Facebook complies with all applicable rules and regulations in the countries where we operate.”
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