IRS probes Facebook over Ireland asset transfer

Facebook just got poked by Uncle Sam.

The lawsuit said Facebook retained accounting firm Ernst & Young to value the transfers for tax purposes, but noted that information gathered by the IRS to date suggested that the valuation approach was “problematic”.

The Justice Department filed a lawsuit in a San Francisco federal court earlier this week, in an effort to force the social media juggernaut to produce documentation that will go towards the IRS’s investigation.

Nina Wu Stone, an investigator with the IRS, notes in one of the filings that she issued six summonses last month for Facebook to produce records related to the asset transfer.

United States tax authorities are asking Facebook to turn over documents for an investigation into the social networking giant’s dealings with its Irish subsidiary, court documents show.

In 2010, Facebook designated its Ireland subsidiary as the holder of rights for all its business outside the U.S. and Canada.

She said that Facebook had entered into agreement with the Ireland corporation on an user base transfer and marketing intangibles licence agreement; an online platform intangible property buy-in licence agreement; and a deal to share costs and risks of online platform intangible property development.

The IRS is examining Facebook’s tax affairs in 2010.

Among other things, the IRS is seeking documents regarding the company’s budget goals and why it made Dublin its worldwide headquarters.

European officials have looked at tax liabilities of companies including Google, Amazon and Apple. The statute of limitations is set to expire on July 31, according to the filing. In Facebook’s case, corporate-tax experts said the company may have been trying to minimize the amount of income the parent company received from the Irish subsidiary, which would reduce Facebook’s tax bill. “Either Facebook will need to agree to extend the statute of limitations or the IRS will likely propose a very large audit adjustment”.