Senator Carl Levin, a Democrat from Michigan, introduced legislation Wednesday to try to close a huge tax loophole that Facebook was poised to take advantage of with its impending initial public offer.
The New York Post reported that under current tax laws, Facebook can claim a loss on shares that Co-Founder and Chief Executive Officer Mark Zuckerberg buys in the company, potentially creating a deduction of up to $5 billion.
Levin has sought to get rid of this tax deduction for 15 years, and his latest attempt comes in the form of an amendment to change the policy on stock option deductions. This is tacked onto a broader bill that addresses several tax loopholes.
According to the Post, if Facebook shares trade at around $40 following the IPO, the company can claim a $4.8 billion expense deduction on its taxes, which Silicon Valley accountant Robert Wood told the newspaper is perfectly legal under the current code.
Levin told the Post that Facebook intends to seek a $500 million tax refund from the past two years after accounting for the so-called losses from Zuckerberg’s stock purchases, adding:
Stock options grants are the only kind of compensation where the tax code allows companies to claim a higher expense for tax purposes than is shown on their books.
Readers: Do you think Facebook is trying to pull a fast one, or would the company be foolish to not take advantage of such a loophole as long as it still exists?