Social media sites Facebook and LinkedIn are enjoying massive tax breaks on stock options, according to recent reports.

Facebook’s first “10-K” annual financial report since going public last year disclosed in its footnotes that despite $1.1 billion in U.S. profits in 2012, the Menlo Park, Calif.-based company did not pay any federal and state income taxes. Instead, Facebook said it will receive net tax refunds totaling $429 million, according to a report by the advocacy group Citizens for Tax Justice.

Facebook’s income tax refunds stem from the company’s use of the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1.033 billion in 2012, including refunds of earlier years’ taxes of $451 million.

That’s not all of the stock-option tax breaks that Facebook generated from its initial public offering, which was disastrous for many investors last year. Facebook is also carrying forward another $2.17 billion in additional tax-option tax breaks for use in future years, CTJ pointed out.

Facebook’s current and future tax reductions from the stock options exercised in connection with its IPO will total $3.2 billion.

CTJ also found that Facebook competitor LinkedIn benefited from tax breaks. An analyst with CTJ told the New York Post that LinkedIn paid no federal income taxes over the past three years, despite making $160 million in profits, by deducting expenses for employee stock option rewards.

The group has been regularly reporting on how large corporations pay little in federal income taxes.  A November 2011 CTJ report assessing the taxes paid by the Fortune 500 corporations that were consistently profitable from 2008 through 2010 identified the stock option tax break as a major factor explaining the low effective tax rates paid by many of the biggest Fortune 500 companies.

Senator Carl Levin, D-Mich., introduced legislation in July 2011 to require companies to treat stock options the same for both book and tax purposes and has signaled his intention to introduce similar legislation early this year. According to calculations made by Levin’s staff using data from the Internal Revenue Service, U.S. companies have consistently deducted far more stock options for tax purposes in the past five years than they recorded as a book expense. This “excess” deduction is estimated by Levin’s staff to range between $12 billion and $61 billion a year.

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