Facebook to contest U.S. bill for back taxes

The IRS claims Facebook’s tax adviser Ernst & Young LLP undervalued the company’s property as it was transferred to Facebook Ireland Holdings Ltd.by evaluating pieces of the online platform separately, according to court filings.

The company notes a ruling “could have a material adverse impact on our financial position, results of operations or cash flows”.

On Monday, the IRS requested a federal magistrate judge in California to force Facebook to provide detailed records on the value of assets it has moved to Ireland. However, Facebook employees told the IRS that the property was “interdependent”, and that “it would be hard to isolate one from the other”, the government said. The IRS’s initial investigation in 2013 and 2014 signaled that EY’s methodology for valuing the assets was “problematic” and it shared that information with Facebook in April 2015, according to court filings.

Facebook has formally informed its investors that it could be on the hook for billions more in back taxes if the Internal Revenue Service’s legal efforts are successful. The tax bill relates to a previously disclosed review of the pricing of assets Facebook transferred to its Irish subsidiary. The company is said to come in cost-sharing agreement with Irish subsidiary to ensure future development alongside undervaluing the assets transferred.

Earlier this week, the IRS disclosed that Facebook ignored a seventh summons as well.

“Facebook complies with all applicable rules and regulations in the countries where we operate”, spokeswoman Bertie Thomson said in an e-mail. Microsoft said in a securities filing Thursday that its audit is continuing and could have a “significant” impact on the company’s finances. The news comes after Facebook reported Wednesday a huge quarterly profit jump, with net income leaping 186% from a year ago to $2.05 billion and revenues surging 59% to $6.4 billion. The company allegedly didn’t go to IRS offices both June 17 and June 29, and the statute of limitations on requesting documents ends July 31.

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