The recently public Uber Technologies Inc. is currently under investigation by the Internal Revenue Service (IRS). Bloomberg reports the agency is reviewing two years of the ride sharing company’s tax filings. The company has stated the agency is simply conducting an “examination” in light of its recent initial public offering. Skeptics have voiced concern the investigation is really a deeper look into the company’s tax strategies. For example, its use of “transfer pricing positions.”
What are transfer pricing positions? This term refers to a tax strategy that can help business get a tax break. For tax purposes, a financial loss for a business can be beneficial as it can generally lead to a tax break. However, serious penalties can apply if the IRS determines the business falsely reported a loss.
In this case, the investigation may be linked to the fact Uber has failed to report a profit. Instead, the company has consistently reported a financial loss in the past and reaped the resulting tax break benefits.
Is there concern Uber falsely reported financial loss? At this point, the company has acknowledged the investigation could reduce its reported losses. This would translate to issues with its reporting and likely lead to additional tax obligations.
Could the investigation impact Uber drivers? The full extent of the agency’s investigation is not yet known. It is possible the investigation could include a review of registered drivers. As such, any driver that provides services through Uber should take steps to make sure they are in full compliance with tax obligations.