IRS Slaps Facebook with Potential $5 Billion Tax Bill

facebook-fb-logo“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” –Ronald Reagan

Facebook just keeps on moving, and the government keeps on taxing. That’s the message the company sent to investors on Friday, noting it may owe an additional $3 billion to $5 billion to the federal government.

The new taxes stem from an IRS investigation as to how the world’s largest social network moved multi-billion-dollar assets overseas. Regulators claim that FB’s accountants didn’t fairly value the assets prior to their transfer, and thus evaded paying billions in taxes on them. The current IRS notice only takes into account the 2010 fiscal year, but regulators are trying to apply it to other years as well. If successful, FB could be on the hook for several billion dollars, plus interest and penalties.

Facebook denies the claims, but notes if the feds do win a ruling, it would have “material adverse impact to Facebook’s finances.”

Many of these cases end with a settlement between the company and the government for an agreed-upon sum and the caveat that the company doesn’t have to admit any wrongdoing. That could very well wind up being the case here, especially if the IRS wins its original claim and moves to apply the ruling to additional fiscal years.

At that point, Facebook would likely shift to damage control mode.

Larger Pullback in the Works?

Meanwhile, Facebook shares have pulled back from their unofficial all-time highs around $132 set in after-hours on Wednesday, following its stellar Q2 report. By Thursday morning, the stock had opened around $128, and fell throughout the day, eventually closing at $125.

Could this be a sign that investors are worried about a growth slowdown?

Facebook Inc (NASDAQ:FB) shares fell $0.67 (-0.54%) to $124.33 in premarket trading Friday. The stock has risen more than 19% year-to-date.


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