Like It or Not: Facebook Gets a $3.2 Billion Tax Break

As you’re filling out your tax forms and cringing at how much in taxes you have to pay, consider this tidbit revealed by the nonpartisan research and advocacy group, Citizens for Tax Justice.

Facebook didn’t pay a dime in federal and state income taxes in 2012. Furthermore, Facebook says it will receive net tax refunds totaling $429 million, despite $1.1 billion in pre-tax profits from its U.S. operations in 2012

That’s according to the social media giant’s first “10-k” annual financial report since going public last year.

How is this possible? Facebook’s is using a single tax break — the tax deductibility of executive stock options. This tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.

That’s not all of the stock-option tax breaks that Facebook generated from its initial public offering of stock (IPO), said Citizens for Tax Justice.

Facebook is also carrying forward another $2.17 billion in additional tax-option tax breaks for use in future years.

Overall, Facebook’s current and future tax reductions from the stock options exercised in connection with its IPO will total $3.2 billion.

Facebook is not the only corporation that benefits from stock option tax breaks.

Many big corporations give their executives, and sometimes other employees, options to buy the company’s stock at a favorable price in the future. When those options are exercised, the companies can take a tax deduction for the difference between what the employees pay for the stock and what it’s worth (while employees report this difference as taxable wages).

Citizens for Tax Justice said that it and other fair taxation advocates argue that “the most sensible way to resolve this incongruity would be to deny companies any tax or ‘book’ deduction for an alleged ‘cost’ that doesn’t require a dime of cash outlay.”

In its Corporate Tax Dodgers report from Nov. 2011, the CTJ found that 30 of the 280 most “profitable” companies for the tax years 2008-2010 paid no income taxes, but instead collected net tax refunds on their combined pre-tax profits of $160 billion.

J. Lipsky

Hello, I am John, born in Cedar Rapids, but lived a lot of years in Latin America. I am an economist and have specialized in credit and debt. Originally sovereign debt, but later on, in credit score management and debt consolidation. I write for many publications. Here in eCreditDaily, I write about credit, second chance banking, and debt. I also write for other websites and bulletins about inflation and country risk.

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