The IRS Has Its Eyes On Facebook (FB)

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Facebook surely faces many lawsuits but one with the IRS involved is no joke.

According to court papers, the U.S. Internal Revenue Service is investigating Facebook Inc. over its transfer of various rights associated with its worldwide business to a holding company in Ireland.

A lawsuit was filed on Wednesday by the U.S. Justice Department in federal cout in San Francisco. The department seeks to enforce IRS summonses served on Facebook and to force the company to produce various documents as part of the agency’s examination.

According to the lawsuit, documents in question relate to an IRS examination of the company’s tax liability for 2010. This was when Facebook’s tax return reported royalty income from transfers of intangible property to Facebook Ireland Holdings Unlimited.

The lawsuit said that the social media giant transferred rights associated with its worldwide business to the Irish company, with the exception of the United States and Canada.

Facebook retained accounting firm Ernst & Young to value the transfers for tax purposes. However this information gathered by the IRS to date,suggests some problems when it comes to the valuation.

It’s been years since Facebook’s transfer, and may be even more years until the IRS reaches a conclusion.

Disclaimer: We have no position in Facebook Inc. (NASDAQ: FB) and have not been compensated for this article.