The IRS is suing Facebook for $9 billion in unpaid taxes

Cal Jeffrey

TS Evangelist
Staff member

The Internal Revenue Service is suing Facebook for $9 billion in back taxes. The trial began on Tuesday and is expected to go on for about a month. Five Facebook executives have been subpoenaed to testify, including Chief Technology Officer Mike Schroepfer, AR and VR Vice President Andrew "Boz" Bosworth, Chief Revenue Officer David Fischer, and two others.

The IRS alleges Facebook undervalued intellectual properties when selling them to an Irish subsidiary in 2010. Shuffling money internally this way is not unusual for multinational corporations. Ireland is considered a haven because of its lower corporate tax rates.

Reuter's reports that between 2010 and 2016, the subsidiary paid Facebook US more than $14 billion in royalties and cost-sharing. These payments were for the use of "trademarks, users, and platform technologies."

Facebook's defense is that inherent risks of expanding overseas drove the valuation down. The deal was also penned before the company's IPO and before it had developed its digital advertising platform, which is its highest revenue earner.

"[In 2010, Facebook] had no mobile advertising revenue, its international business was nascent, and its digital advertising products were unproven," Facebook spokesperson Bertie Thomson told Reuters.

In addition to the IRS inflating the value of its IPs in 2010, Facebook is claiming that the tax burden lies on its international affiliates and not on the US-based parent company.

"Facebook Ireland and Facebook's other foreign affiliates - not Facebook US - led the high-risk, and ultimately successful, international effort to sell Facebook ads," said the company's legal team in a brief before the trial began.

While the suit lists the taxes owed at $9 billion, if Facebook loses the case, it will also have to cough up interest and penalties, which could put its settlement into the 11-figure bracket.

Masthead credit: Cryptographer via Shutterstock

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jgraham11

TS Booster
All these multinational companies play the same game: Sell patents to an offshore subsidiary. Pay most profits to said offshore subsidery for use of their patents. Pay taxes at the rate in Ireland or in Bahamas or where ever else is cheaper = American company pays next to no tax. Just another shell game...
 

Evernessince

地獄らしい人間動物園
All these multinational companies play the same game: Sell patents to an offshore subsidiary. Pay most profits to said offshore subsidery for use of their patents. Pay taxes at the rate in Ireland or in Bahamas or where ever else is cheaper = American company pays next to no tax. Just another shell game...
Of course, it's in their best interests to lower overhead as much as possible.

For example, if I'm a big business and you lower taxes, that just means I have to invest less money into equipment, employees, ect (things that would boost the economy) in order to reach my maximum deduction.
 

Uncle Al

TS Evangelist
All these multinational companies play the same game: Sell patents to an offshore subsidiary. Pay most profits to said offshore subsidery for use of their patents. Pay taxes at the rate in Ireland or in Bahamas or where ever else is cheaper = American company pays next to no tax. Just another shell game...

BUT this time they got caught, and should pay the price as should all others. Just another good reason we need to have a STRONG Consumer Protection Agency with hands off by government influence or scrutiny .....
 
Of course, it's in their best interests to lower overhead as much as possible.

For example, if I'm a big business and you lower taxes, that just means I have to invest less money into equipment, employees, ect (things that would boost the economy) in order to reach my maximum deduction.
It's difficult to even describe the invalid assumptions in that last sentence. The purpose of business is to make money. Tax "deductions" are a government apology for taking so much money the business can make money elsewhere doing something else even under that government's 'protection'. Moving money around internationally to 'retain' the money the business earned is a normal and profitable way of thinking about money.
Tax laws that make this movement possible are due to a country's representatives' inadequate understanding of business and money and the economy or outright bribes. Ireland's undertstanding of another country's tax laws enough to structure their own to profit from them with lower taxes is THE example of enlightened taxation.
Investing in new equipment and employees IS to make more money for the business, NOT the government. The government using targetted deductions to (choose your own term) steer or force a business into a particular area of economic investment by "allowing" it to retain profits is, literally, extortion with a government approval stamp on it.
I don't like businesses moving their profit generating functions overseas and destroying the middle class or the economy. I don't blame the business for it though. It's their job and their duty to their investors. I blame the congressional representatives that create a tax structure that makes the movement the best choice for the business.
You should understand that. It's capitalism and it works.
 

Evernessince

地獄らしい人間動物園
Ireland's undertstanding of another country's tax laws enough to structure their own to profit from them with lower taxes is THE example of enlightened taxation.
So enlightened it's the butt of many jokes: https://en.wikipedia.org/wiki/Ireland_as_a_tax_haven

I can't believe someone can sit there with a straight face and say tax evasion is "enlightened".

Investing in new equipment and employees IS to make more money for the business, NOT the government.
You completely missed my point. Try again.

The government using targetted deductions to (choose your own term) steer or force a business into a particular area of economic investment by "allowing" it to retain profits is, literally, extortion with a government approval stamp on it.
I don't like businesses moving their profit generating functions overseas and destroying the middle class or the economy.
/facepalm

And yet that's how deductions and subsidies work and have worked for a long long time. What's next? The "Taxation is theft" line?

I don't like businesses moving their profit generating functions overseas and destroying the middle class or the economy. I don't blame the business for it though. It's their job and their duty to their investors. I blame the congressional representatives that create a tax structure that makes the movement the best choice for the business.
You should understand that. It's capitalism and it works.
Right, we should all lower our tax rates to match ireland, which has an effective tax rate of 4%. That way we can all go into more debt to support basic government functions like the military and police.

Just a thought, there is NO tax structure that corporations wouldn't try to lower their tax, save for one that has a 0% tax rate. As you just said, companies always seek to maximize profits. Appeasing companies by lowering taxes to what is best for them is beyond dumb.

"It's capitalism and it works."

Yes, it's capitalism. As in, the capitalists will exploit as much as they legally (and often illegally) can. You don't give a robber keys to the safe.
 

PEnnn

TS Guru
So, when can we expect Zucky's butt thrown into in a federal prison??

Oh, never mind. Huge company, billionaire owner, tons of lawyers.....in other words, ain't gonna happen.
 
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Evernessince

地獄らしい人間動物園
I could see FB beating the case. The IRS waited this long to go after FB after some "investigation"? Sounds like a shakedown.
It's more likely that the IRS took awhile because it lacks funding. After all, they have had their funding reduced time and time again which is on purpose. If the IRS doesn't have enough funding, it can't afford to pursue cases against corporate giants. America is the only country I know of that underfunds it's tax collection aside from banana republics.
 
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I can't believe someone can sit there with a straight face and say tax evasion is "enlightened".
You honestly don't think taxes are extortion for government goods? as in you pay what they say the goods are worth? not you get to choose between competing service providers?

Right, we should all lower our tax rates to match ireland, which has an effective tax rate of 4%. That way we can all go into more debt to support basic government functions like the military and police.

Just a thought, there is NO tax structure that corporations wouldn't try to lower their tax, save for one that has a 0% tax rate. As you just said, companies always seek to maximize profits. Appeasing companies by lowering taxes to what is best for them is beyond dumb.

"It's capitalism and it works."

Yes, it's capitalism. As in, the capitalists will exploit as much as they legally (and often illegally) can. You don't give a robber keys to the safe.
And again you view it as "the money belongs to the government and the people" and not the company earning it.

No one said lower the tax rates to match Ireland. Ireland collects tax money for providing essentially no services except name branding. Whether it uses that 'free' tax money to help it's own populace is not moot. To look at it differently, Ireland has found a way to support services to Ireland's native population by taxing the US population for allowing their representatives to be stupid or greedy about tax laws. Taxing stupidity, especially the stupidity of another country, is the essence of enlightened taxation. I'm sorry your blindness about what money is and how it works doesn't let you see that.

"Appeasing companies by lowering taxes to what is best for them is beyond dumb."
I had to explain this to a friend who is an avowed Democrat (the old school type I grew up with). I've mentioned the taxation app in another post. One that shows you all the taxes that were paid to get the item you're buying to you as well as the tax you're going to pay on it. In short, all the taxes the government collects on the labor, raw materials, materials, land, and air and water and transportation for one item.

Company A makes an item that costs 100 to make and sells it for 200. The basic profit on the item is 100. The item is sent to a retailer who sells it for 300. The governments (local state federal) collect a total of 10% of the sales price as 'tax'. Thus the item sells to the consumer at 330. Starting:
The item is a non-essential good so the consumer pays for it with after tax dollars, with a 20% tax rate, the actual cost from income for the consumer for the item is 396. At 396 the consumer can only afford 1 per month.
Income Taxes involved with everyone paying 20%.
Base Group
Company A: 20
Retailer:20
Sales tax: 30

Company A staff wages tax paid
Company A staff transportation tax paid
Company A staff housing tax paid
Company A staff food tax paid
Company A property tax paid
Company A building maintenance tax paid
Company A building energy tax paid
Retailer staff wages tax paid
Retailer staff transportation tax paid
Retailer staff housing tax paid
Retailer staff food tax paid
Retailer property tax paid
Retailer building maintenance tax paid
Retailer building energy tax paid
Secondary Groups
Transporter wages tax paid
Transporter vehicle tax paid
Transporter vehicle fuel tax paid
Transporter vehicle maintenance tax paid
Retailer staff food purchase location with similar taxes

and on and on until every thing, service, or movement is taxed and collected.

Company A can move 50 miles away out of state and pay their staff less and thus increase profits 5%. Cost of moving is 100,000. Payback at current
profit margins is 5 years with the cost of the move a federal taxable deduction over 5 years.
Both the state and the local government will lose not only the company paid taxes on the item, but all the company workers taxes and the taxes on the people that would support the workers and the taxes on the housing the workers would occupy and the taxes on the food and lowered income taxes collected on less workers being required in the food selling facility. This is ignoring the transportation wage taxes and all the infrastructure to support that transportation.
How dumb is it for the State and local municipality to lower taxes on the manufacturing Company A to retain them and their workers in their taxing area?
This analogy applies to national levels with tariffs as part of the carrot and stick of taxation.
 

Evernessince

地獄らしい人間動物園
How dumb is it for the State and local municipality to lower taxes on the manufacturing Company A to retain them and their workers in their taxing area?
This analogy applies to national levels with tariffs as part of the carrot and stick of taxation.
I've seen states with low tax rates. They either have to get state funding through other means (like an "entertainment" tax) or they have **** infrastructure, education, ect.

You don't seem to realize that someone has to build the roads that those companies use and someone has to educate the workers it hires.

California has a very high tax rate and yet it's headquarters to some of the largest companies in the world. Who would have thought that investing tax dollars into your workers and infrastructure would yield a location desirable to corporations?

For certain companies, typically low skill job ones, prefer locations with low tax rate. The good paying jobs follow the workers wherever they are. Your idea might work if America was a 3rd world country.

There are plenty of examples of why lowering taxes doesn't work past a certain point.
 
I've seen states with low tax rates. They either have to get state funding through other means (like an "entertainment" tax) or they have **** infrastructure, education, ect.

You don't seem to realize that someone has to build the roads that those companies use and someone has to educate the workers it hires.

California has a very high tax rate and yet it's headquarters to some of the largest companies in the world. Who would have thought that investing tax dollars into your workers and infrastructure would yield a location desirable to corporations?

For certain companies, typically low skill job ones, prefer locations with low tax rate. The good paying jobs follow the workers wherever they are. Your idea might work if America was a 3rd world country.

There are plenty of examples of why lowering taxes doesn't work past a certain point.
/sigh. Yes I do. And there are specific federal taxes collected to build those roads. Ask any trucker or just look on the back of some of the fleet trucks. They will tell you how much that truck paid last year to build the roads. There's a tax on your gasoline earmarked for that.

As for education. There are taxes for that also. Pre-college it's generally real estate taxes. Those taxes are collected from the workers who's salaries the state and local municipalities I mentioned are trying to retain in the area. Take a look at the rust belt for municipalities struggling with losing their manufacturing infrastructure and tax base.

California's high tax rate has it bleeding middle class like an aortic puncture. It's in the national news. Silicon Valley, where these 'largest companies" you mention are headquartered has an employed worker housing problem of biblical proportions. There are tech people there with five figure jobs living in tents and motor coaches. There are no homes for the support class. Do a quick search on housing protests in the bay area. California is the worst example of business success and worker support you can name outside a Shanghai slum. The only reason anything is being done from the megatechs is because good skilled people are unable to stay. If you are young enough to watch the course of history, you will eventually see Chicago-New Jersey-New York housing style 'projects' springing up there to 'support' the workers in the same way they supported rust belt manufacturing and the auto industry.

This is not my idea. This is reality. The term 'low skill job' is interesting the way you use it. My example was manufacturing. I didn't even mention the basic support jobs that bind a locality together from fast food to janitorial to barista to waste managment. Each of which require technical skills to provide maintenance on the machinery they use and buildings they occupy to provide basic support. Where do you draw the line at 'low skill'? Dishwashers? Waiters? Drill press operator? Assembly worker? QA? Dev? Bank teller?

I'm not sure where you get the information you get but the workers follow the jobs not the jobs the workers. If you're referring to tech people, tech people are produced everywhere there's a college wanting to get students in. If you're referring to the various 'silicon valley' enclaves that've sprung up as some technical companies seek a background base of trained workers they can buy away from other companies instead of paying to train a new generation of, both the northeast, southeast and west coast emerged from federally funded research. Follow the money back and you'll easily see it.

You are correct. Lowering taxes does not work past a certain point. The export of our middle class and manufacturing, first to Mexico then to Southeast Asia, now China and soon Africa is the case-in-point of companies chasing unskilled exploitable labor to compete for cheap labor intensive manufacturing and aided by investment chasing gains no matter the human cost. The present administration is reversing that movement by understanding how the real world and the real business world operates. I can't say I agree with all the methods but at least something is being done to stem bleeding of the US. Perhaps you should take a look at macroeconomics as being built from economics and microeconomics.

This is not meant to insult. Much of what you are saying is based on niche views of an overall picture. It is a young people viewpoint and I had it myself in my day. Since then I've learned that money is a tool and some people are good with that tool and some are not, but it's not the government's job to make them equal. I know you disagree, but it's what I've learned.
 
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All these multinational companies play the same game: Sell patents to an offshore subsidiary. Pay most profits to said offshore subsidery for use of their patents. Pay taxes at the rate in Ireland or in Bahamas or where ever else is cheaper = American company pays next to no tax. Just another shell game...
The funny thing with the US - Ireland set-up is that, if I remember correctly, US tax law says that you need to pay taxes where the company is located (Ireland) but Irish tax law says that you need to pay taxes from where the company is managed. So if managers for the "Irish" company sit in California, guess where taxes need to be paid.


 
/sigh. Yes I do. And there are specific federal taxes collected to build those roads. Ask any trucker or just look on the back of some of the fleet trucks. They will tell you how much that truck paid last year to build the roads. There's a tax on your gasoline earmarked for that.
Have you not seen tax stickers on gas pumps showing how $ per/gallon "that pump charges"? You don't need to "ask a trucker" for it. Lol

The different states Departments of (Roads) are well funded by those taxes, and also government tax give-backs.

California's high tax rate has it bleeding middle class like an aortic puncture. It's in the national news. Silicon Valley, where these 'largest companies" you mention are headquartered
No mention of the ENTIRE rest of the state. You want to talk about homeless people, we'll talk about homeless people. Los Angeles has so many homeless we're hiring the HOMELESS to count the homeless. Kentucky can't do that.

has an employed worker housing problem of biblical proportions. There are tech people there with five figure jobs living in tents and motor coaches. There are no homes for the support class. Do a quick search on housing protests in the bay area. California is the worst example of business success and worker support you can name outside a Shanghai slum. The only reason anything is being done from the megatechs is because good skilled people are unable to stay. If you are young enough to watch the course of history, you will eventually see Chicago-New Jersey-New York housing style 'projects' springing up there to 'support' the workers in the same way they supported rust belt manufacturing and the auto industry.
Yawns, more foreign carping about California. It's ironic to mention New York, though, "New York has emerged as the premier Tech City in this year’s index, overtaking San Francisco. Access to a deep talent pool and the city’s reputation as a global center of commerce makes New York the global leader." - Savills. Yeah, New Yawk. First.

Credit or Blame for California's tech-explosion can be laid on one persons objectives, that person was Frederick Terman. From the 1890s, Stanford University's leaders saw its mission as service to the West and shaped the school accordingly. At the same time, the perceived exploitation of the West at the hands of eastern interests fueled booster attempts to build self-sufficient local industry. Thus, regionalism helped align Stanford's interests with those of the area's high-tech firms for the first fifty years of Silicon Valley's development.

After World War II, Frederick Terman as Stanford University's dean of the school of engineering, encouraged faculty and graduates to start their own companies.

In 1951, Terman spearheaded the creation of Stanford Industrial Park (Stanford Research Park), the University leased portions of its land to high-tech firms.

He is credited with nurturing companies like Hewlett-Packard, Varian Associates, Eastman Kodak, General Electric, Lockheed Corporation, and other high-tech firms, until what would become Silicon Valley grew up around the Stanford University campus.

There's how modern jet-tech-city came into being, housing became a massive problem when companies created 100,000's of thousands of jobs quickly without a corresponding up-tick in additional "new' housing. Today a few companies have committed (around) 3-4 billion to help resolve housing shortages they admit being a factor in creating. It's been known all along though, and there's plenty of "blame" to go around, no one company has to shoulder it all. It comes as no surprise there's a known cause and effect, what is the expected outcome when someone drinks and drives? Companies and people 'cause' problems, it how they're dealt with that matters.

I'm not sure where you get the information you get but the workers follow the jobs not the jobs the workers.
Perhaps from knowing the jobs we lazy trifling millennials might take are mobile compared to the inherent immobility of millennials. I don't know of anyone willing to move for a "job",, but they'll quit in a flash over lousy morals and vapid culture.
 
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Yawns, more foreign carping about California. It's ironic to mention New York, though, "New York has emerged as the premier Tech City in this year’s index, overtaking San Francisco. Access to a deep talent pool and the city’s reputation as a global center of commerce makes New York the global leader." - Savills. Yeah, New Yawk. First.
/sigh. If you''ll check old posts and the one about hardpan you'll see I'm from California. I grew up there when the okies were alive and working and picked with the Braceros in the Sacramento portion of the Central Valley when the big commercial farmers were forced to hire locals by the then government. I was there before Oroville Dam was completed and went to see that 'modern marvel' back when it was actually maintained because the central valley was agrarian. I returned when I was stationed there with the Air Force and worked in the wing my father was in back when we were watching the French blow up the South Pacific. In short, I was there before you and possibly your mother.

In 1951, Terman spearheaded the creation of Stanford Industrial Park (Stanford Research Park), the University leased portions of its land to high-tech firms.

He is credited with nurturing companies like Hewlett-Packard, Varian Associates, Eastman Kodak, General Electric, Lockheed Corporation, and other high-tech firms, until what would become Silicon Valley grew up around the Stanford University campus.
Please read something outside whichever social engineering pro-Stanford phenom put this pile of hogwash together.
I still have a (established 1912 and manufacturing 1929) LOCKHEED desk coaster from the days before it became Lockheed-Martin in 1995. Burbank is a considerable distance from Silicon Valley.
Hewlett-Packard is indeed the beginning of Silicon Valley and the plaque says so, but 1927 (or 1939) are hardly 'sudden change' years with no time to prepare or build housing.
As for Provost Frederick Terman AFTER WW II, "...credited with nurturing companies like..." your list . I'm pretty sure the dates alone show the propaganda value.
General Electric didn't even remotely start on that coast and was, then, high tech before Fred there was born in 1900 and was definitely world class before he provided any leadership at Stanfod.
In short, that didn't happen that way.
I did love 'nurturing' this list of "startups" though. That was a hoot.

Perhaps from knowing the jobs we lazy trifling millennials might take are mobile compared to the inherent immobility of millennials. I don't know of anyone willing to move for a "job",, but they'll quit in a flash over lousy morals and vapid culture.
Not to add a drop of reality to your picture, but if the jobs are 'mobile' why aren't the tech giants moving them to lower cost (for their workers) areas. "Stanford Research" is available to anyone as the Chinese PLA will avow. There's no reason not to move the jobs to, for instance, West Virginia or the Rust Belt where housing is for nickels; or Chicago where the auto industry crash has lowered prices, infrastructure to commute and telecommute is already built, and the service sector and schools are mature and ready for new people.
The answer is: they don't have to. If you read 'other' news, and I do, you'll see there's such a thing as importing high tech labor. 200,000 H1B workers drives down 'millenial' labor value, especially those who would "... quit in a flash over lousy morals and vapid culture...". Again the current administration is trying to change this sort of thing, but the "new" companies involved (not even including the old ones on your list) scream bloody murder and these tech billionaires speak loudly with their money.
What was the original subject? oh yeah, a tech billionaire's company being fined 9 gigabucks.

btw: you should take a look at New York City and New Yorkers fleeing the state and the generated population losses. The truth is out there.
 

Evernessince

地獄らしい人間動物園
/sigh. Yes I do. And there are specific federal taxes collected to build those roads. Ask any trucker or just look on the back of some of the fleet trucks. They will tell you how much that truck paid last year to build the roads. There's a tax on your gasoline earmarked for that.

As for education. There are taxes for that also. Pre-college it's generally real estate taxes. Those taxes are collected from the workers who's salaries the state and local municipalities I mentioned are trying to retain in the area. Take a look at the rust belt for municipalities struggling with losing their manufacturing infrastructure and tax base.

California's high tax rate has it bleeding middle class like an aortic puncture. It's in the national news. Silicon Valley, where these 'largest companies" you mention are headquartered has an employed worker housing problem of biblical proportions. There are tech people there with five figure jobs living in tents and motor coaches. There are no homes for the support class. Do a quick search on housing protests in the bay area. California is the worst example of business success and worker support you can name outside a Shanghai slum. The only reason anything is being done from the megatechs is because good skilled people are unable to stay. If you are young enough to watch the course of history, you will eventually see Chicago-New Jersey-New York housing style 'projects' springing up there to 'support' the workers in the same way they supported rust belt manufacturing and the auto industry.
Taxes that target specific areas aren't intended to replace income tax, they are designed to be used along side it. The gas tax for example, is designed so that people who drive are paying for the roads they use. General income tax is used as the main income basis for any governing body while specific taxes are used to subsidize specific areas. In many cases the goal is to make it fair while other times it's about making ends meet.

I'm not sure where you get the information you get but the workers follow the jobs not the jobs the workers. If you're referring to tech people, tech people are produced everywhere there's a college wanting to get students in. If you're referring to the various 'silicon valley' enclaves that've sprung up as some technical companies seek a background base of trained workers they can buy away from other companies instead of paying to train a new generation of, both the northeast, southeast and west coast emerged from federally funded research. Follow the money back and you'll easily see it.
Hmm, is that why high skill industries setup in locations with access to high skill workers?

It's almost like high-skill talent is in high-demand and they can't just tell all their workers to up and move because there are a dozen other business that would hire them in the area. Hmm....
 
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BigRedPDX

TS Booster
IRS is hitting hard this year. They sent me a letter to collect the $1 that owed them. I think they spent more on postage to get that $1 from me. Facebook's $9 Billion really should be $15 Billion. I would be happy with that.
 
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