The Internal Revenue Service (IRS) is taking on Facebook. The agency has accused Facebook of failing to report and pay taxes on billions of dollars of overseas income.
The agency conducted an audit on the social platform in 2011. The audit focused on alleged financial discrepancies from 2008 and 2009. Eventually, the agency expanded the audit to include 2010. The IRS has made over 200 requests for documents from Facebook. Facebook has complied. The IRS then sent Facebook a Statutory Notice of Deficiency. Basically, this is a letter from the IRS stating that the agency plans to assess a tax deficiency. The recipient of the letter can wait and comply with the process or petition the Tax Court. Facebook chose to move forward with a petition.
One of the goals of the petition was to move the case out of Tax Court and into the IRS Office of Appeals. The IRS declined. Facebook took the request a step further by filing an action with the United States District Court. In its filing, Facebook argued the taxpayer bill of rights provided the right to move forward with the issue in the IRS Office of Appeals. The court heard the matter in April. Ultimately, the court held in favor of the IRS stating that Facebook did not suffer any harm when the IRS refused to move the issue. As such, Facebook did not have legal standing to pursue the matter.
What does the court’s holding mean? Facebook has not lost its tax case. This simply means they do not get to move forward with the issue in the IRS Office of Appeals. The issue will proceed within Tax Court.
The case also provides a lesson on the complexity of international tax law disputes. Ultimately, this case is about compliance with United States tax laws. The next hearing for this case is scheduled for 2019.