Obama and pal Mark Zuckerberg at a town hall
Need an example of the sort of tax loopholes used by major corporations that the president spoke of closing in his State of the Union Address? How about an accounting gem used by Facebook, Inc., that enables the company to report earnings of $1.1 billion and end up paying zero dollars in federal and state taxes? It gets worse. According to a report published Friday by consumer watchdog group Citizens for Tax Justice, Facebook stands to receive a federal tax refund of about $429 million.
The explanation is simple. Facebook — unlike many other major corporations — relies on stock options as a form of compensation. You won’t find the $429 million tax refund in Facebook’s financial statements. In fact, quite the opposite: The company had a $559 million federal tax liability in 2012. But the mind-numbing lunacy doesn’t stop there. Facebook anticipates reducing its tax liability in the future by an additional $2.17 billion through similar tactics.
While Citizens for Tax Justice says that companies like Facebook should treat stock options the same in their reports to shareholders as they do their tax filings, Businessweek is quick to defend the social media giant. Its writers point out that there is nothing illegal about the tax breaks the company is claiming.
But the same can be said about the tax-sheltering strategies used by the industries that Obama targets in his passionate appeals for fairness. Maybe the difference is that Mark Zuckerberg , CEO of Facebook, is also an FOO — Friend of Obama. Zuckerberg donated heavily to Obama’s re-election campaign.
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Howard Howard Howard…this is not a “loophole”. It’s a function of financial reporting vs. tax reporting (in the case of stock otions, it’s a fallacy in the financial reporting rules…FAS123R as I recall).
There are several other “disconnects” between the 2 that would have uninformed people (including Citizens for Tax Justice, a favorite cite for the left btw) think that companies get away with crimes and therefore we don’t need to lower the US corporate tax rate.
Just to spell it out…a company pays an employee $x in cash. That’s an expense that decreases their reported earnings. The Company gets a tax deduction (unless subject to sec 162(m)). The employee reports it as income. Stock options, the company gets to report a portion of the value as compensation expense, the rest gets charged directly against stockholders equity (same result on the company’s net worth, just how it gets there). The employee still reports the full value as income and the Company gets a deduct for the same amount.
Reading any of Citizens for Tax Justice studies I come away thinking that if only we could get that many holes in a block of Swiss cheese…don’t support the leftie myth. You can’t use financial accounting rules as a denominator and taxes paid as the numerator…apples and oranges.
Teejk, thanks for your insights. For the record, no one is calling this a crime. I make that distinction myself in the article.
Well Howard…quit feeding the mythical beast…lefties are the best cherry pickers around (as long as they don’t have to work hard and get 6 weeks vacation and a pension).
Without disclosing where I came from, I can tell you for a fact that Citizens for Tax Justice is clueless and as far as I can tell is the lemming version of the pied piper. Of course they are “non-partisan” (chapter 6 of my coming treatise on wool/sheep eyes).
If you want to know where the true “loopholes” are in the tax code, I might be able to point you in the right direction. They are rare and hard to find but I may (or may not) have found a few in what may (or may not) have been my career.
I have to hedge anything I say anymore. Black helicopters and such (although I guess I should relax…if we can’t somehow monitor voters in elections then we should be safe everywhere else).