Facebook Inc. said it could be on the hook for $3 billion to $5 billion in additional taxes as a result of an Internal Revenue Service investigation into how the social network transferred assets overseas.
The company said in a quarterly filing Thursday that the IRS had issued a “statutory notice of deficiency” a day earlier saying Facebook owes more taxes for 2010. The July 27 notice came the same day that Facebook said second-quarter profit nearly tripled to $2.06 billion.
The notice flows from an investigation that started in 2013 into the company’s treatment of assets it transferred to Ireland in 2010.
The IRS earlier this month sued Facebook for documents related to the transfer, saying it suspected that Facebook’s accountants had undervalued some of those assets by “billions of dollars.” But neither the agency nor Facebook had said before Thursday what the company’s potential tax liability could be.
The IRS notice applies only to the 2010 tax year, but if the IRS takes a similar position for other years it is investigating and wins in court, it could result in an additional federal tax liability of between $3 billion and $5 billion, plus any interest or penalties.
Facebook said it disagrees with the IRS’s position and plans to file a petition in U.S. Tax Court challenging the notice. If the IRS prevails, it would have a “material adverse impact to Facebook’s finances,” the company said in the filing. Tax Court cases can take years to conclude and can be appealed into other federal courts.