WASHINGTON — December 18, 2025 — Meta Platforms’ long-running U.S. tax fight just entered a higher-stakes phase, with the Internal Revenue Service pursuing roughly $16 billion and leaning on a legal approach that could reshape how multinational companies price and report profits tied to intellectual property. [1]
At the center of the dispute is Meta’s decade-old structure for assigning rights to profit from markets outside the U.S. to an Irish affiliate—an arrangement the IRS says shifted tens of billions of dollars of income into a lower-tax jurisdiction. Meta disputes the government’s analysis and is now fighting the latest round in U.S. Tax Court. [2]
What’s new on December 18, 2025: the IRS escalates with a rarely used tool
A report circulating Thursday (Dec. 18) described the IRS as escalating its challenge by introducing what the agency and tax practitioners call “periodic adjustments”—a backward-looking mechanism that can use a company’s actual post-deal performance to revisit whether an earlier intercompany deal properly reflected the economic value of transferred or shared intangible assets (like platform technology and patents). [3]
That matters because transfer-pricing fights have traditionally hinged on what was knowable at the time a deal was set, including forecasts and projections. Under the “periodic adjustments” concept, blockbuster results later on can become central evidence in deciding whether the original pricing was arm’s-length—especially for so-called high-profit-potential intangibles. [4]
The dollars at stake: Meta says the IRS asserted $15.89B for 2017–2019
In its most recent quarterly filing, Meta disclosed that in September 2025 it received a Statutory Notice of Deficiency from the IRS asserting $15.89 billion in additional tax, plus interest and penalties, for tax years 2017 through 2019—driven primarily by transfer pricing with foreign subsidiaries and other international tax adjustments. [5]
Meta also stated the “largest issue” in that 2017–2019 notice relates to the same underlying transfer-pricing transaction litigated for the 2010 tax year, and it emphasized that the IRS proposal is not a final determination and does not reflect offsets that could reduce the net tax due under post-2017 international tax rules. [6]
The structure at the heart of the case: a 2010 cost-sharing deal tied to Ireland
The IRS dispute traces back to 2010 transactions involving Meta’s (then Facebook’s) Irish subsidiary. In that period, Facebook and its Irish affiliate entered a cost-sharing arrangement (CSA) in which the U.S. entity contributed key platform technology via a platform contribution transaction (PCT) and licensed certain intangibles for use outside the U.S. and Canada. [7]
The economic logic is straightforward—if controversial: the smaller the payments made back to the U.S. parent for valuable rights, the larger the share of non-U.S. profits that can be booked in Ireland, where tax rates were historically lower than the U.S. rate that applied before the 2017 corporate tax overhaul. [8]
The IRS’s big swing: “periodic adjustments” and the “commensurate with income” standard
The crux of the government’s new approach is rooted in Internal Revenue Code Section 482, which empowers the IRS to allocate income among related entities to clearly reflect income and to ensure results align with an arm’s-length standard. [9]
In a January 2025 legal memorandum released by the IRS Office of Chief Counsel, the agency laid out why it believes periodic adjustments are not only permissible but, in certain cases, necessary—especially when a company has better information than the government about the future profit potential of unique intangibles. The memo argues that the statute’s “commensurate with income” language allows the IRS, in appropriate circumstances, to base adjustments on income actually received after the transfer, not solely on what was projected upfront. [10]
The memo also emphasizes that the periodic adjustment rules operate as a specific overlay on the broader arm’s-length framework—meaning, where the rules apply and no enumerated exception is satisfied, taxpayers generally cannot override a periodic adjustment simply by appealing to general arm’s-length principles. [11]
Why Meta’s prior Tax Court fight matters (and may complicate the IRS’s new push)
This is not the first courtroom clash between Meta and the IRS over the 2010-era structure.
Meta disclosed that it received a 2010 deficiency notice in 2016 and petitioned the Tax Court; it later received another notice covering 2011–2013 and also challenged that. [12]
On May 22, 2025, the Tax Court issued an opinion in the 2010-year case. Meta said the court provided a value of $7.79 billion for intellectual property transferred to its international subsidiary—$1.48 billion higher than Meta had reported—and that the company’s income tax provision increased due to the remeasurement of unrecognized tax benefits. The final tax due is to be determined after additional court steps, and an appeal to the Ninth Circuit remains possible once a decision is entered. [13]
Legal analyses of that May 2025 opinion highlight a key nuance: the Tax Court generally endorsed the IRS’s use of the “income method” under cost-sharing regulations but rejected several inputs the IRS used to apply that method, moving the outcome closer to the taxpayer’s position than the government’s asserted value. [14]
This history is exactly why the IRS’s latest move is being watched so closely. The Wall Street Journal report noted that some experts believe the IRS faces a harder path because the earlier case relied not only on Meta’s position but also on third-party investor evidence—and because the court fight over the 2010 transaction is still unfolding procedurally. [15]
Meta’s response: challenging the $16B deficiency and attacking the “double tap”
Meta’s core argument is that the IRS is effectively taking another run at the same underlying transaction—this time by attempting to apply periodic adjustments to later-year results. [16]
Reporting summarized by tax-focused outlets indicates Meta’s December 4 petition in Tax Court argues that the IRS’s periodic adjustments are “arbitrary” and that the government is barred from using them due to doctrines such as collateral estoppel, estoppel, and res judicata—concepts that, in plain English, can limit re-litigating issues that were (or should have been) resolved in prior litigation. [17]
A Tax Notes summary further indicates Meta is challenging about $15.95 billion in deficiencies and penalties, and that the IRS increased Meta’s income by more than $54 billion for 2017–2019 in connection with platform contribution transactions involving Facebook and Facebook Ireland. [18]
Separately, a Law360 report described Meta as challenging a nearly $16 billion tax bill tied to an agreement with an Irish affiliate to share costs—again underscoring that the heart of the dispute is the cost-sharing/IP framework underpinning Meta’s international profit allocation. [19]
Why this case could ripple beyond Meta
Even though this fight centers on Meta’s specific structure, tax practitioners see it as a potential bellwether because it tests how aggressively the IRS can use periodic adjustments against large multinationals whose most valuable assets are intangible—software, algorithms, patents, and user-driven network effects. [20]
The Wall Street Journal report pointed to other companies with major cross-border tax disputes and suggested a government win could give the IRS a more powerful lever in an area where policing profit shifting has historically been difficult. [21]
At the same time, the broader environment is not what it was a decade ago. The Journal noted that internal licensing and cost-sharing structures became less central as global corporate tax rates converged and after the U.S. cut its corporate rate in 2017—adding that Meta itself unwound the Irish arrangement in 2020. Still, the precedent risk remains, especially for years and structures already under examination. [22]
The “tax whiplash” context: Meta’s separate 87% effective tax rate shock
The legal battle over transfer pricing is not the only tax headline attached to Meta in late 2025.
In its Q3 2025 results, Meta reported an 87% effective tax rate for the quarter ended September 30, 2025, driven by a one-time, non-cash income tax charge of $15.93 billion related to implementation of the “One Big Beautiful Bill Act.” Meta said that excluding the one-time charge, its effective tax rate would have been 14% for the quarter. [23]
In its SEC filing, Meta explained that the law enacted on July 4, 2025 introduced provisions expected to reduce U.S. federal cash taxes in future periods, but those benefits were limited by the 15% Corporate Alternative Minimum Tax (CAMT)—prompting Meta to record a discrete charge tied in part to a valuation allowance against U.S. federal deferred tax assets. [24]
Market coverage at the time underscored how dramatic the accounting impact was: Investopedia reported that the nearly $16 billion tax charge squeezed reported profits, even though underlying revenue growth remained strong. [25]
Put simply, Meta has been dealing with two different “$16 billion” headlines:
- an IRS deficiency dispute (cash taxes ultimately determined through litigation and settlement) for 2017–2019; and
- a one-time accounting charge in Q3 2025 tied to new tax law implementation, which Meta described as non-cash. [26]
What to watch next
Several developments will determine how quickly—and how broadly—this story evolves:
- Tax Court procedure and timing: Meta’s earlier 2010-year case still requires additional steps before a final decision is entered and appealed (if either side chooses). [27]
- Whether courts accept periodic adjustments here: The IRS is effectively asking the judiciary to bless a more ex-post approach for high-profit intangible transfers and cost-sharing arrangements. [28]
- Spillover to other multinationals: If the government wins, periodic adjustments could become a more common enforcement tool—changing how companies defend legacy IP deals, and potentially altering settlement dynamics even in disputes that never reach a verdict. [29]
For Meta, the stakes are obvious: tens of billions of dollars in taxable income allocation, years of litigation runway, and a potential precedent that could outlast the company’s current business cycle. For the IRS—and for multinationals that built their global tax strategies around mobile, high-profit intangibles—the bigger question is whether this case becomes the moment “periodic adjustments” move from theory to a durable enforcement weapon. [30]
References
1. www.wsj.com, 2. www.wsj.com, 3. www.wsj.com, 4. www.wsj.com, 5. www.sec.gov, 6. www.sec.gov, 7. www.millerchevalier.com, 8. www.wsj.com, 9. www.irs.gov, 10. www.irs.gov, 11. www.irs.gov, 12. www.sec.gov, 13. www.sec.gov, 14. www.millerchevalier.com, 15. www.wsj.com, 16. taxprofblog.aals.org, 17. taxprofblog.aals.org, 18. www.linkedin.com, 19. www.law360.com, 20. www.wsj.com, 21. www.wsj.com, 22. www.wsj.com, 23. www.sec.gov, 24. www.sec.gov, 25. www.investopedia.com, 26. www.sec.gov, 27. www.sec.gov, 28. www.wsj.com, 29. www.wsj.com, 30. www.wsj.com
