Meta Told the IRS Its AI Data Centres Are Just an Experiment, Saving Nearly $4 Billion Last Year

September 30 (IT Home) — According to The New York Times, Mark Zuckerberg claims that Meta’s push into artificial intelligence has been a resounding success. “Our AI investments are accelerating every one of our core business segments,” he told investors. “Both the momentum in our own business and the direction of the industry as a whole confirm that this investment decision was the right one.”

When it came to filing its taxes, however, Meta presented the US Internal Revenue Service (IRS) with a different picture. According to four people familiar with the company’s operations, Meta argued to the tax authorities that its AI data centres are essentially one enormous experiment that could fail at any moment.

Meta’s aim was to take advantage of a tax credit designed specifically for research, development and experimentation. On that basis, the company claimed billions of dollars in tax relief for its data centre expansion.

“Dressing up AI data centres as experimental is, frankly, a fairly outrageous and audacious move,” said Andre Shevchuck, a partner at the consultancy BPM who specialises in research and development tax credits.

In fact, Meta’s own finance staff know full well that the strategy lacks solid legal support. Buried in the fine print of its securities filings, the tech giant admits that because of “uncertainty regarding the company’s research and development tax credits,” the billions of dollars in tax savings face a significant risk of being overturned by the IRS.

Here is what Meta did in practice: in its tax filings, the company classified its multi-billion-dollar hyperscale data centres as “pilot models.” The tax credit, created in the 1980s to encourage innovation, allows companies to claim a refund on the consumable materials they buy — but the central condition is that those materials must be used in experimental research and development, not in ordinary commercial operations. On that basis, Meta argues that the expensive AI computing chips it buys from suppliers such as Nvidia are part of that experiment and should therefore qualify for tax relief paid for out of public funds — that is, by taxpayers.

The strategy has raised concerns inside Meta’s own finance department. The IRS has repeatedly challenged companies that fold ordinary materials purchases into this credit. Although thousands of businesses, including other tech giants, also benefit from the research and development tax credit, the overwhelming majority of their credits come from the salaries paid to researchers and engineers — the human cost of actually doing innovative work — rather than from bulk hardware purchases.

Financial filings show that Meta began including data centre spending in the tax credit two years ago. Since then, the tax relief it has obtained on this basis has soared, directly saving it nearly US$4 billion last year alone (about 26.87 billion yuan at current exchange rates). After reviewing public securities filings, the newspaper found that Meta is now the biggest beneficiary of this tax break of any listed US company.

Meta has previously been drawn into a large tax dispute with the IRS over its use of this tax break: the company once tried to offset its chief executive’s multibillion-dollar pay package with it. Court documents show that in 2013 Meta argued that the US$4.1 billion in stock options Mark Zuckerberg exercised counted as research and development spending, on the grounds that he had helped lead the development of core software such as the News Feed. The IRS is now pursuing US$355 million (about 2.385 billion yuan) that Meta saved through that tax avoidance.