By Adam Stuhlman I @stuhlman_adam
In January 2013, one Hartford resident was in the United States Tax Court because she couldn’t pay a $213 tax bill. She was unemployed. However, Internal Revenue Service lawyers debated penalties for refusing to pay $213, which should have been deducted for educational tax credit.
Then in February 2013 news broke that Facebook amassed a billion in profit in the previous year and did not pay taxes. In fact, Facebook was expecting a refund.
Like many, she wanted an answer to this blatant disparity in how the court system meted out justice to individual tax payers.
Now the IRS is fighting to get Facebook back to court over allegations that the social media giant has avoided paying taxes through shifting money overseas.
Matt Gardner, executive director for the Institute on Taxation and Economic Policy, said Facebook has been shifting money out of the United States to Facebook Ireland and the Cayman Islands. He said they have also used a legal stock option tax break to reduce the amount of taxes they have to pay.
“The interesting thing about Facebook on this front is that the IRS has been trying to get Facebook to cooperate with their investigation into this precise issue for some time,” said Gardner. “The IRS has issued something like a half dozen different summons to Facebook, which Facebook has basically ignored.”
According to documents from their website, Facebook’s
$5 billion revenue in 2012 represented a 37 percent increase from $3.7 billion in 2011.
Citizens for Tax Justice, a partner organization with ITEP, said that Facebook paid nothing in income taxes in 2012. Gardner said the IRS has issued at least six summons for Facebook to appear in court.
IRS Spokesperson Yadira Nadal declined to comment on this, saying that federal law prohibits the IRS from commenting on any taxpayer, organization’s situation, or case.
Anteneh Daniel, executive for The Brunswick Group, said in an email that Facebook’s statement from their media relations department is as follows:
“Facebook applies with the rules and regulations of all countries where we operate and we have no further comment at this time.”
The Brunswick Group is an advisory firm that “specializes in critical issues and corporate relations,” according to brunswickgroup.com.
“It is very difficult to tell what these assets are worth. When companies aggressively seek to lowball the value of these assets it can be very difficult for the IRS to catch up with that and make them value it (assets) correctly,” Gardner said. “That is what makes it a hard thing to police and monitor.”
Gardner said transfer pricing rules are put in place to make sure that when companies transfer assets overseas, “they do so at a fair price.” But the difficulty in enforcing these laws makes it harder on the IRS. He said the only solution is to make sure the IRS has the proper funding and the authority to go after companies that break the law.
While the IRS may be having difficulty with Facebook, it keeps on going when it comes to collecting taxes from other citizens. An April 2014 Gallop poll revealed that 66 percent of Americans feel that corporations pay too little in taxes, with the middle class paying too much. It also said that 40 percent of Republicans felt that lower income individuals pay to less in taxes, as compared to 22 percent of Independents and 11 percent of Democrats.
Connecticut residents want to know whether lawyers in the Office of Chief Counsel, namely William Borgardus and Debra Lynn Reale, are still targeting nonprofit organizations and individuals after news of Facebook’s victory over the IRS.
Multiple calls and emails to the IRS about lack of corporate income tax and any potential impact this may have on other citizen’s taxes were not returned.
To read the gallop poll click here: http://www.gallup.com/poll/168521/taxes-rise-half-say-middle-income-pay.aspx
To read Facebook’s document click here: https://s21.q4cdn.com/399680738/files/doc_financials/annual_reports/FB_2012_10K.pdf
Reporter Adam Stuhlman can be reach on Twitter: @stuhlman_adam