MITH: Well, it is no secret, Facebook's IPO flop, but the IRS is about to make it feel a whole lot better. Can a $429 million tax refund finally push Congress to overall corporate taxes? He tells on that story next. At the end of the day, it is all about MONEY.
SMITH: April 16th is just around the corner. Better mark your calendars. That's coming up. Well, that, of course, means that the tax man is coming, but he's not coming for everyone. A new report by Citizens for Tax Justice shows that despite posting a $1 billion profit last year, Facebook is actually getting a tax refund. That's right. It's getting $429 million back from the federal government and didn't have to dish out a single dime in state or federal taxes.
How is that possible? And how many more companies are using this same tactic? Joining me now is federal tax practitioner, David Selig. David, how do you explain this? We're facing the taxman and we're all dreading writing out these checks. How are they getting away with getting over $400 million back from the government?
DAVID SELIG, TAX PRACTITIONER: Well, first of all, they're not really getting away with anything. They're just following the law. In this case, internal revenue code 162 allows corporations, companies to deduct their expenses, including compensation. They did deduct their compensation properly.
That created this appearance that they're not paying taxes, but remember, all of the people who receive these proceeds, they do pay taxes. Now, this exact issue was recently raised by Barbara Lee. She's representative from San Francisco. And she called it the Income Equity Act, saying that corporations should not be allowed to make these deductions, but it was so bad for business that the bill was just -- it died on arrival.
SMITH: So, they paid taxes throughout the year, like we all do. So, they did pay state and federal taxes.
SELIG: And keep in mind, they are paying an awful lot more in taxes collectively directly and indirectly than most people. But this is one point that I'd really like to make clear to all of your viewing audience and everyone else out there.
SELIG: If, in fact, it appears that something improper has happened, the government has recourse through a very unlikely source.
SMITH: Well, I'm sure they're going to get checked out now that this story is out. I mean, I'm looking at $1.03 billion in pretax profits for Facebook last year. $429 million is how much they're going to get back. And we're talking about they might be able to reduce their tax liability by another $2.2 billion
I mean, do you think there's going to be any backlash here because there's a lot of talk about the oil companies. You know, they should get paid higher taxes because their profits are so big. But here's Facebook. They're making all this money and not owing anything at all at the end of the year.
SELIG: Well, again, that's sort of divisive argument that sounds good, but the reality is they do pay a lot of taxes. Now, as I was saying, there is a provision in Obamacare, admittedly Facebook has nothing to do with health insurance, but, it is an economic substance rule where if it's determined that this corporation hasn't paid its fair share of taxes, this was subsumed and that whole, you know, code that they will have to pay what they owed plus 40 percent penalty. But don't hold your breath because, like I said, what they did was entirely proper and legal.
SMITH: So, as a tax practitioner, if Facebook -- we have to leave it here, but if they came knocking on your door, you'd be willing to defend them because they didn't do anything wrong?
SMITH: All right. Well, David Selig, Facebook is available. All right. David, thank you so much for joining us.