Mark Estrada – The Internal Revenue Service (IRS) is deploying new valuation strategies to target Meta for profit shifting and underpayment of taxes. The IRS is seeking nearly sixteen billion dollars in tax deficiencies, all related to Facebook’s—now Meta’s—2010 use of an international tax framework called the double Irish—a now-abolished ownership arrangement that routed profits through two Irish entities to a tax-haven holding company—to avoid paying income tax. The catch? The IRS is now trying to use income adjustment tools from the Biden administration to recapture that unpaid tax. If the tax court approves the IRS’s use of the periodic adjustment tool, it will be a declaration of looming enforcement to other multinational entities—unless budget cuts decimate the IRS’s enforcement capacity.
The Double Irish. In 2010, Facebook transferred intellectual property related to its internal algorithms, ad-targeting systems, and user data infrastructure to an Irish subsidiary. The subsidiary was headquartered in the Cayman Islands and was owned by another Irish subsidiary. Facebook valued its intellectual property at $6.3 million based on internal projections, and that transfer payment was meant to compensate Facebook’s U.S. company for future profits. However, by placing the asset in the Cayman Islands, a tax-free jurisdiction, and creating an Irish blocker parent company—subject to just 12.5% corporate tax—Facebook was able to pay much less than the 35% the U.S. would have taxed its future profits at. If the IRS could recover from past abuse, it could recapture millions of dollars for the US government.
The Meta dispute highlights the issues inherent in increasingly complex digital economies and international tax policy, as well as the IRS’s recent attempt at recapturing tax from prior abuse. International and domestic policy continuously work to fill tax loopholes and ensure that large multinational entities pay tax in at least one jurisdiction. On the international front, the OECD’s Pillar Two global minimum tax—which sets a 15% floor on corporate taxation across participating jurisdictions—and Ireland’s full phase-out of the double Irish in 2020 both represent coordinated efforts to close the international loopholes Facebook exploited. Domestically, the One Big Beautiful Bill Act and the Tax Cuts and Jobs Act have disincentivized income shifting by making it more attractive to pay taxes in the United States and have closed many loopholes previously used by U.S. Multinational Entities like Meta.
While the international and domestic strategies mentioned aim to secure future taxation, they do not address past abuse.
The IRS is now attempting to use IRC § 482—allowing the commissioner to allocate income and deductions among related taxpayers—to address past tax-avoidance strategies. The IRS’s interpretation of IRC § 482 would retroactively target past abuse by periodically revaluing transferred property to reflect arm’s length value and collecting taxes based on those revaluations.
For Meta specifically, a successful periodic adjustment would mean that the IRS could treat the 2010 Intellectual property transfer as if it had been priced at the asset’s future fair market value—a figure which would increase Meta’s past income by billions—and impose taxes, interest, and substantial penalties on the difference. According to court documents, Meta’s tax deficiency would be $15.89 Billion, coupled with penalties of $58 Million.
For the U.S. government, the implications would be a viable tool for targeting past abuse against the entire generation of multinational entities that used similar structures to Facebook’s. One estimate suggests that the transfer of undervalued intellectual property rights by companies such as Meta, Google, Apple, eBay, Microsoft, and PayPal could result in nearly $700 billion in back taxes, interest, and penalties owed to the U.S. government.
Yet even if the IRS wins here, it may not have the resources to act because all this is happening at one of the IRS’s weakest points. The IRS budget was cut to $12.3 billion in 2025, and it is expected to be reduced further to $9.8 billion in 2026. As a result, tax experts anticipate that the IRS’s transfer pricing division will be significantly diminished and that much of the work needed to enforce transfer pricing rules will be delegated to generalists who may be less experienced in handling transfer pricing issues.
Whether the IRS wins against Meta will determine if they can succeed in similar cases against other U.S. multinational companies. Yet while the IRS may win a powerful enforcement weapon, it’s happening at the exact time they might lose the capacity to wield it.
