You Probably Paid More Taxes Than Facebook In 2012

By David Cohen 

How much federal and state income tax did Facebook pay in 2012? If you guessed, “zero,” you were correct, and if you guessed that the social network received $429 million in net tax refunds, you get extra credit.

Citizens for Tax Justice examined Facebook’s recently filed 10-K annual form for the Securities and Exchange Commission and found that the company was able to exploit the law that allows for tax deductibility of executive stock options, lowering its federal and state income tax obligations by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million.

CTJ added that Facebook has another $2.17 billion in similar tax-option tax breaks that it can use in future years.

The group is not accusing Facebook of any wrongdoing, writing:

Of course, 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, corporations 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). Before 2006, companies could not only deduct the “cost” of the stock options on their tax returns, reducing their taxable profits as reported to the IRS, but they also didn’t have to reduce the profits they reported to their shareholders in the same way, creating a big gap between “book” and “tax” income.

Some members of Congress have recently taken aim at this remaining tax break. In July 2011, Sen. Carl Levin (D-Mich.) introduced the “Ending Excess Executive Corporate Deductions for Stock Options Act,” to require companies to treat stock options the same for both book and tax purposes. Levin has signaled his intention to introduce similar legislation in early 2013. According to calculations made by Levin’s staff using IRS data, in the past five years, U.S. companies have consistently deducted far more stock options for tax purposes than they recorded as a book expense. This “excess” deduction, according to Levin’s calculations, has ranged between $12 billion and $61 billion per year.

Readers: Do you think the law allowing these tax breaks should be changed?

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