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Facebook tax actions getting a big 'unlike' from IRS

If you run a business in Minnesota or Wisconsin, you know it can get complicated. Tax compliance alone can leave your brain a scrambled mess and if the IRS begins to dig into the numbers it can result in your company being notified of a significant tax liability.

As bad as this situation can be for small to midsize businesses, consider the implications if the firm is large – like globe-sized. This appears to be the state of affairs being faced by the technology behemoth, Facebook, Inc. If the IRS succeeds in a claim filed with the Securities and Exchange Commission, Facebook could be looking at tax penalties that it acknowledges could result in a major "material adverse impact" to its bottom line.

At the heart of the issue is an IRS allegation that rather mushy accounting practices may have been used in the valuing of intangible Facebook assets that were transferred by the company to its subsidiary in Ireland. Because of the complicated strategy, the company is believed to have avoided some taxes. And if the SEC agrees with the claim, Facebook says it could have to pay up to $5 billion, plus interest. That would probably be considered materially adverse by almost anyone's standards.

According to court records, Facebook U.S. assigned rights to certain intangible assets such as its user base, its online platform for social networking and marketing elements. When that was done, officials say accountants may have understated their true worth by billions of dollars. In addition, officials claim that the company has failed to comply with multiple summonses from the IRS seeking financial records and other data.

Now Facebook is in receipt of an IRS "Statutory Notice of Deficiency," dated July 27, 2016 that applies to the 2010 tax year and could apply to subsequent years. That starts a 90-day countdown under which Facebook must either agree to the IRS findings or file a disagreement petition with the Tax Court. Facebook says it will be taking the latter route.

It's perhaps worth noting that such cases can take years to resolve. When such disputes develop, you will want to get an evaluation of your case from a skilled attorney.

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