Facebook could get hit with $3B to $5B tax bill

SAN FRANCISCO — Facebook could get hit with a tax bill between $3 billion and $5 billion from the Internal Revenue Service that would have a "material" impact on the company, the technology giant said in a filing on Thursday.

The IRS is investigating Facebook for the tax years 2008 through 2013, according to the filing. Facebook says it received notice on July 27 that it may have understated assets by billions of dollars when it transferred them to an Irish subsidiary in 2010.

Facebook says it plans to challenge the IRS. "We do not agree with the position of the IRS and will file a petition in the United States Tax Court challenging the Notice," Facebook wrote in the filing.

However, Facebook said, "if the IRS prevails in the assessment of additional tax due based on its position, the assessed tax, interest and penalties, if any, could have a material adverse impact on our financial position, results of operations or cash flows."

IRS investigating Facebook's Ireland asset transfer

The Justice Department has asked a federal court to force Facebook to comply with an IRS request for information about the asset transfer to its Ireland international headquarters.

The request is part of an IRS investigation into Facebook's federal tax liability for the period ending Dec. 31, 2010 and a "problematic" auditing approach that, the IRS says, could have understated by "billions of dollars" the value of the transaction and could affect the company's tax liability.

That 2010 tax return reported royalty income from "transfers of intangible property" relating to Facebook's international business to Facebook Ireland from Facebook U.S., according to court documents filed in July in U.S. District Court for the Northern District of California.