Facebook reignites transfer pricing battle with the IRS
If the IRS prevails here, periodic adjustments shift from a theory to a standing enforcement tool.
Facebook (a.k.a. Meta) is back in Tax Court over the same IP transfer it thought had been resolved.
The IRS issued new adjustments in September tied to later cost-sharing years, not the original 2010 transfer.
Facebook says the agency is relitigating issues that have already been decided. The case now puts the IRS’s aggressive view of periodic, commensurate-with-income adjustments directly in play.
The Law in Play
The dispute sits at the intersection of §482 and the transfer pricing regulations governing intangibles. The earlier case focused on the valuation of a platform contribution transaction, or PCT, tied to Facebook’s 2010 IP transfer to Facebook Ireland. The court agreed with the IRS on method and regulatory framework but largely rejected its valuation.
The new case centers on cost-sharing arrangements and the IRS’s authority to apply the commensurate-with-income standard after the fact. The agency argues that later profits from the IP show Facebook’s original projections were too low. Facebook contends that the court has already settled the value question and that periodic adjustments are inconsistent with a lump-sum valuation approach.
Timeline
2010: Facebook transfers IP to Facebook Ireland through a PCT.
2019: IRS litigates the valuation of the 2010 transfer.
May 2025: Tax Court issues a mixed ruling. Method upheld. Valuation largely favors Facebook.
September 2025: IRS issues about $16 billion in new adjustments for tax years 2017 to 2019 tied to cost-sharing.
December 2025: Facebook files a new Tax Court petition challenging the adjustments.
Present: Case awaits initial scheduling and briefing.
The Larger Story
This case is not just about Facebook. It reflects a broader shift in IRS posture on transfer pricing enforcement. The agency is leaning harder on the commensurate-with-income standard to revisit outcomes years after transactions close. That approach clashes with how most arm’s length deals work, where price certainty at closing is the point.
The January IRS general legal advice memo accelerated that tension. The memo asserted the authority to make periodic adjustments when actual profits diverge from projections, even in the absence of explicit contractual adjustment clauses. Practitioners pushed back, arguing that the memo reads like a new rule without rulemaking. Facebook now becomes the first large-scale test of whether courts accept that view.
What It Means in Practice
Cost-sharing arrangements face renewed scrutiny even after PCT disputes appear resolved.
Forecast assumptions matter more than ever. Weak projections can invite later look-backs.
Periodic adjustments may be asserted as a second phase after losing on valuation.
Prior wins in Tax Court may not end exposure for later years tied to the same IP.
Multinationals should revisit documentation supporting projected returns, not just methods.
Next Steps
The court will first address whether the September adjustments are barred by the earlier ruling or present a legally distinct issue. Briefing will likely focus on the scope of the May decision and the reach of the commensurate-with-income standard. If the case proceeds, trial appears likely given the stakes and the lack of settlement incentives on either side.
It's interesting to see the court finally weigh in on the 2009 regulations. The fact that the valuation dropped from $19.9B to $7.8B just by adjusting the inputs shows how much power the IRS can wield—and how important it is for companies to have bulletproof documentation for their discount rates and revenue projections from day one.
The 'Double Tap' is real. Even after this ruling, the IRS is already coming back for the 2017–2019 years with another $16 billion deficiency notice. This case proves that in transfer pricing, the litigation never really ends—it just moves to the next tax cycle.