Airbnb just revealed it's under examination by the IRS, which is proposing the home-sharing giant pay more than $1.35 billion in back taxes

  • Airbnb is under examination by the Internal Revenue Service for its income taxes in 2013 and 2016, according to the company's S-1 filing.
  • A draft notice of adjustment from the IRS proposes that the company could owe an additional $1.35 billion for its 2013 tax bill, plus interest and penalties.
  • The 2013 tax bill is a result of the company's valuation of the sale of its international intellectual property to a subsidiary. 
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Airbnb is under examination by the Internal Revenue Service for 2013 and 2016, which could result in an added tax liability of $1.35 billion, plus penalties and interest, the company cautioned in the IPO paperwork it revealed on Monday.

According to the company, that amount is more than $1 billion more than the company has set aside for tax liabilities. The filing shows that the company had a little more than $177 million set aside in "indirect tax reserves" as of the end of September of this year.

The IPO filing notes that the 2013 tax bill is the fallout "relating to the valuation of our international intellectual property." The filing doesn't clarify which subsidiary the dispute is relating to.

Per the filing, Airbnb has an international subsidiary named Airbnb International Holdings Limited and is based in Jersey, an island in the English Channel that has a reputation of being a tax haven. According to Jersey's Companies Registry, Airbnb International Holdings Limited was formed in November of 2013.

The company also announced it was opening its European headquarters in Dublin, Ireland in 2013 and founded an Irish subsidiary Airbnb International Unlimited Company in October of 2013. Ireland has low corporate tax rates, prompting many international companies to set up subsidiaries there. 

Read more: Lyric, an Airbnb-backed hospitality startup that raised $180 million, is offloading its final property to a competitor as its founder turns to focus on software business

According to the filing, the IRS sent Airbnb a Draft Notice of Proposed Adjustment in September 2020, which proposed the increase in US income taxes for 2013. Airbnb said in the filing it expects to receive a formal Notice of Proposed Adjustment from the IRS by the end of the year. 

The company, which slashed staff and cut costs as travel and hospitality was battered by the global pandemic, plans to fight a potential adjustment. 

"We disagree with the proposed adjustment and intend to vigorously contest it," the company's S-1 filing says, noting that the company will appeal this adjustment within the IRS's Independent Office of Appeals, and then subsequently sue in US Tax Court if its appeal isn't successful. 

The issue, first noted in the "risk factors" section of the filing, could have a serious impact on the company's financials. 

"If the IRS prevails in the assessment of additional tax due based on its position and such tax and related interest and penalties, if any, exceeds our current reserves, such outcome could have a material adverse impact on our financial position and results of operations, and any assessment of additional tax could require a significant cash payment and have a material adverse impact on our cash flow," the filing said.

The company is also under IRS examination for its 2016 taxes, but provided no further context in its filing. 

Airbnb did not immediately respond to a request for comment on the filing. 

Read more: Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here's a look inside why it's being called the Warren Buffett of tech.

Axel Springer, Insider Inc.’s parent company, is an investor in Airbnb.

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