Tax bill could force Facebook to pay IRS billions

Facebook said in a quarterly filing Thursday that an nvestigation currently underway may end with the social network owning billions to Uncle Sam.

An Internal Revenue Service probe could result in Facebook being left with a tax bill of between $3-5 billion, the company confirmed.

Depending on the final amount, the government’s bill could have a “material” impact on the company, Facebook said.

The investigation dates back to 2013 when the IRS became concerned with how Facebook went about transferring assets to a foreign holding company, Facebook Ireland Holdings Limited.

The U.S. Justice Department asked Facebook earlier this month to supply the IRS with as much information as possible concerning the 2010 transfer. In an amended complaint filed Wednesday, however, the tax agency said that the social network has now failed to comply with its requests a total of seven times.

“Facebook failed to appear on June 29, 2016, the date scheduled for compliance with the seventh summons, and did not produce the books, records, papers and other data demanded. Facebook’s failure to comply with the seventh summons continues to this date,” the IRS said, according to Forbes.

Those documents, according to the IRS, “may be relevant to understanding Facebook executives’ internal views regarding the transferred intangibles, Facebook’s valuation with respect to third-party investors, Facebook’s valuation with respect to the sale of stock by Facebook employees and valuation modeling with respect to acquired companies, and thus may be relevant to determining the value of the transferred intangibles,” the IRS said in an amended declaration filed this week.

In turn, the IRS has issued a “Statuary Notice of Deficiency” to Facebook, essentially informing the company that it should be expected to pay for tax years 2008 through 2013.

“While the Notice applies only to the 2010 tax year, the IRS states that it will also apply its position for tax years subsequent to 2010, which, if the IRS prevails in its position, could result in an additional federal tax liability of an estimated aggregate amount of approximately $3.0 – $5.0 billion, plus interest and any penalties asserted,” Facebook said Thursday.

“We do not agree with the position of the IRS and will file a petition in the United States Tax Court challenging the Notice,” Facebook added. Should the court disagree, however, then “the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations or cash flows,” Facebook said.

When reached for comment this week, a spokesperson for the social network told Forbes that “Facebook complies with all applicable rules and regulations in the countries where we operate.”