The Point: Multi-Billion Dollar tax Break for Facebook Inc

| | Bookmark and Share

(Original Post)

Posted by Joel Clark • February 19, 2013

Although this point has not been able to garner much attention, but it is of immense importance; the annual earnings report of Facebook Inc (NASDAQ:FB)contains a multi-billion dollar tax deduction for the cost of executive stock options and share awards. According to a Feb 14 statement from the Citizens for Tax Justice, although the Facebook reported the $1.1 billion dollar in pre-tax profits from the US operations in 2012, it will most probably pay zero state and federal taxes and even receive a federal tax refund of around $429 million.

The lobbying and tax research organizations say that the companies like Facebook should treat the stock options the same way in their reports the shareholders as they do in their tax filings. The Citizens for Tax Justice calls the tax footnotes in the January 30 financial statement of Facebook, call it an amazing admission, but there is nothing illegal regarding the creaks the company is claiming.Facebook Inc (NASDAQ:FB)

Companies like those of Facebook are allowed to treat the cost of non-cash compensation, like stock options, as an expense that reduce profits, essentially the way they treat cash compensations such as salaries. The main difference is however that the companies like General Motors, relies heavily on the stock options and the restricted the stock units s form of compensation. During its years as a private company it paid out a lot that it must now recognize on its income statement and balance sheet.

One won’t find any $429 million tax refund in the financial statements of Facebook. The company says that indeed it had a tax liability of $559 million in 2012. However the liability is not an actual payment. The company said in a footnote that it had a $1.03 billion “excess tax benefit” last year related to “stock option exercises and other equity benefits”.