March 2, 2012
Senators Propose Closing 'Facebook Tax Loophole'
Following up on my prior posts (links below): Democratic Senators Carl Levin and Kent Conrad yesterday introduced legislation to close the 'Facebook Tax Loophole.' Facebook awarded Mark Zuckerberg options to purchase 120 million shares for 6 cents per share. Although financial reporting rules allow Facebook to deduct the options at 6 cents per share, tax rules allow Facebook to deduct the amount that Zuckerberg realizes when he exercises his options—$4.8 billion if the value is $40 per share.
- Accounting Today, Senator Proposes Closing Facebook Tax Loophole
- American Thinker, Strangling American Capitalism with the Zuckerberg Tax
- Forbes, Senator: Shock Is What Facebook Can Do Legally
- MSNBC, No Taxes for Facebook? Senator Cries Foul
- Politico, Carl Levin Irked Facebook Could Cash in on Corporate Tax Loophole
- Senator Carl Levin, Floor Speech
- Talking Points Memo, Sen. Levin Calls For Congress To Close ‘Facebook’ Tax Loophole
- Washington Post, Senators Target Facebook With Bill That Would Close Stock-Option Loophole
Prior TaxProf Blog coverage:
- Tax Aspects of Facebook's IPO (Feb. 6, 2012)
- The Zuckerberg Tax: A Progressive Mark-to-Market System (Feb. 9, 2012)
- More on Facebook, Zuckerberg, and Taxes (Feb. 10, 2012)
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The debate on Capitol Hill over the "Facebook loophole" seems incredibly uninformed. Under the section 83 regulations in effect for many years, the $40 per share that Zuckerberg gets upon exercising his stock options is taxed to him as employee compensation income, and his employer, Facebook, gets an equal section 162 deduction for employee compensation expense.
GAAP may allow Facebook to report only 6 cents per share as compensation expense, but the difference is not a "loophole" unless one assumes the law requires book-tax conformity, that is, measuring income and expenses identically for tax and financial reporting purposes. While Congress could make book-tax conformity the law, it has not done so. Congress tried with the corporate AMT provisions of the 1986 Act, but the resulting outcry led to a swift repeal.
Posted by: Jake | Mar 2, 2012 8:27:36 PM
Unless I'm completely missing something, Jake is 100% right. What a nonsense issue.
Posted by: Henry | Mar 3, 2012 6:07:42 AM
Agree with Jake. This is a joke. Just an excuse to use loophole and facebook. Two buzzwords.
Posted by: PJ | Mar 3, 2012 8:16:30 PM
Jake et al..
Worse, the headlines suggest that the ignorance echo chamber extends to the media and society at large.
Posted by: MG | Mar 6, 2012 9:34:45 AM