IRS Targets Facebook in New Probe over Billion-Dollar Tax Understatement

Earlier this month, the Internal Revenue Service (IRS) announced that social media giant Facebook may have grossly underestimated the value of its intellectual property by “billions of dollars” during a transfer to an Irish subsidiary.

Though the lawsuit cites an international transfer, the concern at the heart of the case remains whether or not Facebook understated U.S. income as a result of the transfer, effectively cutting its tax bill.

In recent years, technology giants have utilized complex tax restructuring, prompting government agencies to launch initiatives aimed at rewriting tax rules to avoid inter-group deals that transfer profits into tax havens.

According to the lawsuit, an initial examination by the IRS suggests that the valuation of the transferred assets were understated by some billions of dollars.

However, Facebook has denied any wrongdoing regarding federal tax law, affirming in a statement that the company obeys the laws of any and all countries in which it operates.

When Might the IRS Audit Your Taxes?

No one wants to be notified by the IRS that they are the target of an audit. For many taxpayers, simply hearing the term “IRS audit” is enough to spark anxiety, but the reality is that the risk of an IRS audit is surprisingly low – for most people.

Depending on your gross income, you may face elevated odds of being targeted by the IRS for an audit. For example, for those making anywhere between $100,000 and $200,000 annually, the audit rate is only around one percent. However, once an individual crosses the $500,000 annual threshold, the rate jumps to more than five percent.

Only those accruing more than $5 million or $10 million see a significant risk for tax audit, at nearly 21 percent and 30 percent, respectively. However, there are cases where the audit rate is slightly higher among low-income adults, such as those making less than $25,000, as many of these cases can involve taxpayers fraudulently claiming earned income tax credit.

However, if you are self-employed and file a Schedule C with your tax return, your chances of audit increase signficantly, regardless of income.   That is why it is good practice to operate your business as a corporation.

That’s not to say that it is ever safe to attempt to cheat on your taxes. In fact, the IRS currently uses sophisticated algorithms to identify returns that need to be audited, such as those involving:

  • Extremely large deductions compared to the total income
  • Certain types of deductions, like those related to travel, automobiles or entertainment.
  • Other deductions like casualty losses or any bad debt deductions.
  • Businesses showing losses, especially if they are recurring
  • Out of character deductions

Additionally, the IRS can use technology to match information on returns to employee forms and other documents issued to non-employees, like W-2s or 1099 forms.

Finding an IRS Attorney

If you or someone you know has received notice of an audit by the IRS, or if you are dealing with another IRS-related issue, it is critical that you contact a qualified attorney as soon as possible.

That’s where the skilled attorneys at the Scammahorn Law Firm, P.C. come in. Throughout Dallas, Texas, we work with clients dealing with a variety of federal tax-related issues, including those stemming from IRS audits or disputes. Our attorneys have a wealth of experience with handling federal tax cases, and can provide the sound legal advice you need as you look to protect your future interests.

Let us work with you to find a solution to your IRS issues. To schedule an initial consultation to have your case assessed by one of our highly qualified attorneys, call Scammahorn Law Firm P.C. today at (903) 595-1000.