Facebook is finding itself in some hot water this week with the Internal Revenue Service (IRS) over some asset transfers to its Ireland subsidiary. The IRS is of course one cat you don’t want to mess with and in this case, Facebook attempted to play the ‘if we ignore it, it will go away’ strategy — leading to today’s revelation that the IRS is now suing the social network.
The crux of the issue is the 2010 transfer of business assets from Facebook USA to Facebook Ireland and the listed value of those assets. The IRS think they could have been undervalued by billions of dollars, but can’t prove it because Facebook ignored the IRS request for data and documentation related to the asset transfer.
The practice, while shady by many people’s standards, has become commonplace for U.S. corporations looking to lighten their taxable assets in the U.S. They send the assets to foreign subsidiaries, and then license those assets back to themselves, allowing them to continue using the assets without having them on their U.S. books — and taxable by the IRS.
The IRS is saying that Facebook representatives failed to show up to a scheduled appointment on June 17 to exchange the documents and answer questions about the asset transfer. It has also not provided the requested documentation to the IRS through any other method, prompting the IRS to file the suit.
“Facebook complies with all applicable rules and regulations in the countries where we operate,” a spokesperson for the company told Fortune.com. Though, in this case, at least from the IRS perspective, it appears that is not true, or at the very least that Facebook is taking its sweet time to comply with the request.
In the end, this should not have any real impact on the social network from a user perspective. Though however it plays out, the IRS is not known to take kindly to being ignored, so it will be interesting to see where things go from here.