Meta faces Senate Democrats' questions on $6.6 billion in research tax credits

Meta $META Platforms faces a demand from seven Senate Democrats to explain whether it claimed federal research tax credits to offset the cost of its AI data centers. The senators asked for answers by Oct. 31.

The group, led by Senate Finance Committee ranking member Ron Wyden of Oregon, sent a letter to Meta Chairman and CEO Mark Zuckerberg, stating that published reports indicate Meta characterized its AI data centers to the IRS as experimental "pilot models" in order to claim eligibility for the credit. The senators wrote that the approach violates "the spirit and, potentially, the letter" of the tax law.

Meta has indicated in federal regulatory filings that the research credit reduced its federal income tax liability by $6.6 billion from 2023 through 2025, the letter says. Meta claimed $700 million in credits in 2023, $2 billion in 2024 and $3.9 billion in 2025. The letter cites Joint Committee on Taxation estimates that the credit cost the government $32 billion in 2025, which would put Meta's share at more than 10% of all credits claimed.

The senators wrote that it remains unclear how Meta cut its tax liability by that amount, but a substantial share appears tied to its AI data center buildout. They said the credit is meant to offset the cost of experimental work with a high degree of technical uncertainty. Data center hardware relies on proven technology and would not normally qualify, they wrote.

The letter further highlights Meta's most recent annual report, in which the company connects its uncertain tax positions to "uncertainties with our research and development tax credits." The senators said Meta indicated in investor disclosures that the strategy may not withstand IRS scrutiny.

"Any effort by Meta to use A.I. data center expansion as eligible for research credits is potentially a significant misapplication of federal tax law that merits further investigation," the letter says, according to Bloomberg.

The senators asked Meta to say whether it claimed credits for AI data centers in tax years 2023 through 2025 and to give the legal justification. They also asked whether Meta consulted EY or other accounting firms before doing so, and requested copies of any opinions those firms provided. For each year, they asked how much of the credits related to chips, computing equipment and other materials for AI data centers.

The letter separately asks about $4.1 billion in stock-based compensation to Zuckerberg that Meta claimed as a qualified research expense. The IRS is challenging that position and seeking $355 million in back taxes from Meta, according to the letter. The senators asked whether Meta intends to keep contesting the claim.

That Senate action came roughly a week after an Oct. 7 letter that more than two dozen House Democrats sent to Treasury Secretary Scott Bessent, according to Common Dreams. The House members urged the Trump administration to stop Meta and other tech companies from relying on an expansive reading of qualifying expenditures to claim the credit for data center costs.