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Report: Facebook did not pay taxes

Facebook raked in about a billion dollars in profits last year, but according to a tax watchdog group, it paid no federal or state taxes. The social network is due a whopping $429 million dollar refund, thanks to a major tax loophole.
(CNN) -- Facebook raked in about a billion dollars in profits last year, but according to a tax watchdog group, it paid no federal or state taxes. The social network is due a whopping $429 million dollar refund, thanks to a major tax loophole.

We all want our tax preparers to find us the biggest possible refund and Facebook’s accountants found a big one.

The social network is claiming a $1 billion tax deduction for “excess benefits from stock options.”

What does that mean, you ask? In Facebook’s early days, the company paid many of its executives with stock options – promises to buy shares of the company’s stock at a set price. When Facebook went public last year, it meant execs – including CEO Mark Zuckerberg – could exercise these options and buy Facebook stock at a price far below market value.

The difference between the price paid and the actual market value is tax deductible for the company. And, Facebook is not the only company that does this.

The advocacy group “Citizens for Tax Justice” found 185 companies in the Fortune 500 took similar deductions in 2010, including Apple, Goldman Sachs, Hewlett Packard and Exxon Mobil.

Citizens for Tax Justice has criticized the deduction, calling it a “corporate tax loophole.” And it’s perfectly legal, unless Congress changes the tax code.

Democratic Senator Carl Levin, of Michigan, introduced a bill to eliminate stock option deductions in 2011. It was never voted on.

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