I read a fascinating New York Times article this week about Meta—the parent company of Facebook and Instagram—and the enormous tax benefits it has claimed related to its investments in artificial intelligence and data centers.
It got my attention for several reasons.
Maybe that’s because I spent much of my career in finance. But the more I thought about it, the more I realized this isn’t really a story about accounting.
It’s a story about whether our tax system works equally for everyone.
Meta isn’t accused of hiding billions of dollars in a suitcase.
It’s doing something much more sophisticated.
It is using provisions Congress put into the tax code—including research tax credits and deductions associated with enormous investments—to dramatically reduce the taxes it otherwise would pay.
That raises some questions I think are worth asking.
This Isn’t the Tax Code Most of Us Know
For most Americans, taxes aren’t particularly creative.
If you’re an employee, your employer reports your wages to the IRS.
Taxes are withheld from your paycheck.
You might deduct mortgage interest or charitable contributions. Maybe you have investment income or retirement distributions.
But there’s only so much maneuvering room.
A company like Meta operates in a completely different universe.
Meta reported more than $200 billion in revenue in 2025.
It reported approximately $3.9 billion in research and development tax credits for that year alone.
That’s perfectly legal if the company qualifies for them.
But how do we determine whether it does?
That’s where things become interesting.
Is a Data Center Really Research?
According to The New York Times, Meta has claimed billions of dollars in federal research tax credits by treating qualifying aspects of its enormous AI data-center projects as research.
When most of us hear “research,” we probably imagine scientists developing new drugs or engineers inventing new technologies.
Meta’s argument is more complicated.
Building cutting-edge AI infrastructure involves solving technical problems that may never have been solved before. Meta therefore contends that qualifying portions of that work constitute research under the tax code.
Maybe they do. Maybe they don’t.
I’m certainly not qualified to decide. But someone has to.
And that someone is the IRS.
Two Sets of Books?
Here’s another part of this story I find fascinating.
Public companies tell investors how profitable they are.
Executives discuss earnings growth and return on investment. They explain why billions spent on data centers will produce future profits.
Then the tax department goes to work.
The same company may legally tell the IRS that some of those expenditures qualify for research credits, immediate deductions or accelerated depreciation.
That can make it sound as though the company is telling Wall Street one story and the IRS another.
But we need to be careful.
Financial accounting and tax accounting are not the same thing.
Congress deliberately creates tax incentives to encourage certain activities. A company can legitimately report an investment one way under financial-accounting rules and receive different treatment under the tax code.
That isn’t inherently dishonest.
The more interesting questions are: How aggressively should a corporation interpret those rules when billions of dollars are at stake?
And: Who has the ability to challenge that interpretation?
Imagine the Audit
Suppose the IRS decides to audit Meta.
Who sits on Meta’s side of the table?
Potentially some of the best tax attorneys, accountants, economists and consultants money can buy.
They may have spent months—or years—designing and documenting a particular tax position.
Now look across the table.
Who represents the American taxpayer?
IRS revenue agents, attorneys and specialists.
For years, government watchdogs have warned that the IRS has struggled to maintain the staffing and expertise required to audit highly complicated taxpayers.
That’s not surprising.
Auditing my tax return wouldn’t require an army of specialists.
Auditing Meta’s might.
Then the IRS Lost Thousands of People
That brings us to what has happened since President Trump returned to office.
The IRS began 2025 with roughly 103,000 employees.
By January 2026, more than 31,000 employees had separated or accepted incentives to leave. Even after some hiring, the agency’s net staffing was down about 28 percent.
More important for this discussion, roughly one-third of the IRS’s revenue agents left.
Revenue agents are among the professionals responsible for sophisticated examinations of individuals and businesses.
The effects are already showing up.
The IRS opened more than 120,000 fewer audits in 2025 than the previous year, while revenue collected through enforcement declined by almost $5 billion.
The Trump administration argues that technology, including artificial intelligence, can help the IRS operate more efficiently with fewer employees.
Maybe it can.
But here’s the question I keep coming back to:
Can software replace the experienced tax professionals needed to challenge the most sophisticated corporations in America?
We’re about to find out.
The Risk-Reward Calculation
Put yourself in the position of a corporate tax executive.
Your job is to legally minimize your company’s taxes.
Suppose your advisers identify an aggressive but defensible interpretation of the tax code that could save the company $1 billion.
What’s the probability anyone will seriously challenge it?
If there is a strong likelihood that experienced IRS specialists will examine the position, management has one risk calculation.
If the chance of a sophisticated audit is small, management has another.
Meta’s own financial statements give us an interesting glimpse into this world.
At the end of 2025, Meta reported $11.23 billion in net uncertain tax positions, predominantly involving research tax credits and transfer pricing with foreign subsidiaries.
That doesn’t mean Meta did anything improper.
Companies are required to account for uncertain tax positions.
But $11 billion tells us something important: Enormous amounts of money can depend upon tax questions where the answer isn’t necessarily black and white.
The Referee Problem
Our income-tax system depends heavily upon voluntary compliance.
Most people pay what they owe because the law requires it and because they know the IRS may check.
Enforcement provides the referee.
But imagine playing a football game where one team has 50 coaches studying the rulebook and there is one referee responsible for watching the offense and defense.
Eventually the rulebook isn’t the biggest problem.
The lack of referees is.
That’s what concerns me about reducing the government’s ability to examine highly complicated tax returns.
This isn’t an argument for harassing ordinary taxpayers. Quite the opposite.
Most ordinary taxpayers have income that’s easily verified through W-2s, 1099s and other reporting. The difficult enforcement problem lies at the other end—where transactions are extraordinarily complicated and billions of dollars can turn on the interpretation of a few words in the tax code.
Is Meta the Problem?
I don’t think so.
If Congress gives a corporation a legal tax deduction, I expect the corporation to take it.
If Congress creates an R&D credit and Meta legitimately qualifies, I expect Meta to claim it.
A corporation’s management has responsibilities to its shareholders.
So perhaps Meta isn’t the problem.
Maybe the system is.
Congress writes an extraordinarily complicated tax code filled with incentives, deductions and credits.
Corporations hire extraordinarily talented people to maximize those benefits.
Then we reduce the resources available to the government to determine whether the resulting tax returns comply with the law.
What should we expect to happen?
Then I Looked at My Own Tax Return
All these billions of dollars can become mind-numbing.
So I decided to make this personal.
I pulled out my own 2025 federal income-tax return.
My federal income tax was approximately 12.5% of my adjusted gross income.
Then I looked again at Meta.
Based on its financial disclosures, Meta’s current federal income-tax expense was approximately 3.6% of its U.S. income in 2025.
Before anyone writes to tell me I’m comparing apples and oranges, I understand that.
My 12.5% and Meta’s 3.6% aren’t technically equivalent tax rates. Corporate tax accounting involves deferred taxes, credits and other adjustments that make direct comparisons difficult.
But I’m still left staring at those two numbers.
12.5%.
3.6%.
And I can’t help asking:
Does that seem fair?
What Does $3.9 Billion Look Like?
One number particularly caught my attention.
Meta reported approximately $3.9 billion in research and development tax credits in 2025.
Not $3.9 million.
$3.9 billion.
Congress created the research tax credit because we want businesses to conduct research, develop technology and invest in the future.
There’s a legitimate public-policy argument for doing that.
But let’s put $3.9 billion into terms we can understand.
The average SNAP benefit for people living in households with children is about $174 per person per month. At that average, $3.9 billion is roughly equivalent to an entire year of SNAP benefits for about 1.9 million people living in households with children.
That’s a lot of groceries.
Or consider health insurance.
The average person receiving an Affordable Care Act premium tax credit in 2026 receives approximately $650 per month. At that average, $3.9 billion is roughly equivalent to a year’s premium assistance for about 500,000 people.
That’s a lot of health insurance.
I’m not saying that without Meta’s research credit Congress would automatically spend $3.9 billion on SNAP or health insurance.
Nor am I saying Meta necessarily did anything illegal.
Congress created the credit. If Meta legitimately qualifies, our tax laws allow the company to claim it.
My question is different.
What Do We Choose to Subsidize?
We frequently hear that the federal government can’t afford things.
We can’t afford food assistance.
We can’t afford health-care subsidies.
We can’t afford this program or that program.
That may be true. With a national debt around $40 trillion, we absolutely need to make choices.
But tax breaks are choices too.
When Congress allows a taxpayer to reduce its tax liability through credits or deductions, the Treasury collects less revenue than it otherwise would. That’s why economists refer to many of these provisions as tax expenditures.
The money doesn’t pass through Washington in the same way a SNAP payment does. But it still affects the federal budget. And that’s where this becomes uncomfortable for me.
We can debate how much government should spend on food assistance.
We can debate how much it should subsidize health insurance.
Those debates become political very quickly.
But shouldn’t we apply similar scrutiny when the beneficiary is one of the largest and most profitable corporations in the world?
I’m Not Angry at Meta
This may sound strange after everything I’ve written.
But I’m not particularly angry at Meta for taking a tax credit Congress created.
If my accountant tells me I’m entitled to a legal deduction, I’m probably going to take it.
Why would I expect Meta to behave differently?
My concern is with the system we’ve created.
Congress writes the tax laws.
Congress decides what receives favorable tax treatment.
Meta hires extraordinarily talented people to understand those laws and legally minimize its taxes.
And we’ve simultaneously reduced the government’s ability to examine extraordinarily complicated corporate tax returns.
That’s the part that troubles me.
When I filed my return last year, there wasn’t much mystery.
The IRS knew much of my income from information already reported to it.
There wasn’t an army of tax lawyers figuring out whether I could characterize something differently and save another billion dollars.
I paid what the tax code said I owed.
That amounted to approximately 12.5% of my adjusted gross income.
Meta played under a very different part of the same tax code and reported current federal income-tax expense equal to roughly 3.6% of its U.S. income.
Again, those aren’t identical measurements.
Maybe every dollar of Meta’s tax benefits is completely justified under the laws Congress wrote.
But that brings me right back to my original question:
Are those the tax laws we want?
Because ultimately this isn’t simply about Meta.
It’s about who writes the rules, who benefits from them, who has the resources to take maximum advantage of them—and whether we have enough referees to make sure everyone is actually playing by those rules.
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Quote of the Day
“Taxes are what we pay for civilized society.”
— Oliver Wendell Holmes Jr.
That doesn’t answer how much any of us should pay.
But it reminds us that taxes aren’t simply money disappearing into Washington. They’re how we collectively pay for the government and services we’ve decided we want.
Orchid of the Day
Today’s Orchid goes to the career IRS revenue agents, attorneys, accountants, economists and other professionals who try to enforce an extraordinarily complicated tax code.
Their job isn’t to make people pay more than they owe.
It’s to make sure they pay what the law says they owe.
For the tax system to be credible, somebody on the other side of the table needs to understand the rules just as well as the taxpayer’s experts do.
Onion of the Day
Today’s Onion goes to Congress for creating a tax code so complicated that understanding it has become an industry of its own.
Tax incentives can serve legitimate purposes.
But when billions of dollars depend upon interpretations that require armies of lawyers and accountants to understand, perhaps we should ask whether complexity itself has become part of the problem.
Question of the Day
If an ordinary taxpayer pays a higher percentage of income in federal income tax than one of America’s most profitable corporations, does that necessarily mean the system is unfair—or does it mean we need to look much more closely at the rules that produced those results?
And perhaps more importantly:
Who should decide which activities deserve billions of dollars in tax benefits?
Lyrics of the Day
Wednesday’s answer:
“Think” — Aretha Franklin
Today’s lyric:
“Money, it’s a gas.”
Name the song and the artist and put your answer in the comment section below.
Answer next time.
Video of the Day: