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    "parsed_content": "Artificial IntelligenceMeta\u2019s Data CentersA.I. Arms RaceWhite House A.I. EventOpenAI\u2019s SecurityTraining A.I. ModelsReader Questions, AnsweredCredit...Illustration by Joan Wong; Photographs by Jason Henry for The New York Times, Mike Stewart\/Associated Press, Getty ImagesSkip to contentSkip to site indexSearch & Section NavigationSection NavigationAccountAccountGoHome U.S.SECTIONSU.S.PoliticsNew YorkCaliforniaEducationHealthObituariesScienceClimateWeatherSportsBusinessTechThe UpshotThe MagazineTOP STORIESDonald TrumpSupreme CourtCongressImmigrationAbortionLatest PollsNEWSLETTERSThe MorningMake sense of the day\u2019s news and ideas.The EveningCatch up on big news, and wind down to end your day.See all newslettersPODCASTSThe DailyThe biggest stories of our time, in 20 minutes a day.See all podcastsWorldSECTIONSWorldAfricaAmericasAsiaAustraliaCanadaEuropeMiddle EastScienceClimateWeatherHealthObituariesTOP STORIESMiddle East CrisisRussia-Ukraine WarChina International RelationsThe Global ProfileLeer en Espa\u00f1olNEWSLETTERSThe WorldA guide to understanding the news, made for readers around the globe.Your Places: Global UpdateThe latest news for any part of the world you select.Canada LetterBackstories and analysis from our Canadian correspondents.See all newslettersBusinessSECTIONSBusinessTechEconomyMediaFinance and MarketsDealBookPersonal TechEnergy TransitionYour MoneyTOP STORIESU.S. EconomyStock MarketArtificial IntelligenceNEWSLETTERSDealBookThe most crucial business and policy news you need to know.On TechOur best tech reporting from the week.See all newslettersPODCASTSHard ForkOur tech journalists help you make sense of the rapidly changing tech world.See all podcastsArtsSECTIONSToday's ArtsBook ReviewBest SellersDanceMoviesMusicTelevisionTheaterPop CultureT MagazineVisual ArtsRECOMMENDATIONS100 Best Movies of the 21st CenturyCritic\u2019s PicksWhat to ReadWhat to WatchWhat to Listen To5 Minutes to Make You Love MusicNEWSLETTERSBooksReviews, news and features to help you find your next read.WatchingStreaming TV and movie recommendations.See all newslettersPODCASTSBook ReviewThe podcast that takes you inside the literary world.PopcastPop music news, new songs and albums, and artists of note.See all podcastsLifestyleSECTIONSAll LifestyleWellTravelStyleReal EstateFoodLoveYour MoneyPersonal TechT MagazineCOLUMNS36 HoursAsk WellThe HuntModern LoveWhere to EatVowsSocial Q\u2019sThe EthicistAsk the TherapistNEWSLETTERSThe WeekenderUnwind with stories about culture and the way we live.WellEssential news and guidance to live your healthiest life.See all newslettersPODCASTSModern LoveThe complicated love lives of real people.See all podcastsOpinionSECTIONSOpinionGuest EssaysEditorialsOp-DocsVideosLettersTOPICSPoliticsWorldBusinessTechClimateHealthCultureCOLUMNISTSJamelle BouieMaureen DowdDavid FrenchThomas L. 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Data Centers to Avoid Billions in Federal TaxesMeta is exploiting a lucrative tax break intended to support research and experimentation. Its own accountants say the gambit is risky.Credit...Illustration by Joan Wong; Photographs by Jason Henry for The New York Times, Mike Stewart\/Associated Press, Getty ImagesSupported bySKIP ADVERTISEMENTListen \u00b7 13:53 min Share full articleBy Kashmir HillJesse DruckerEli Tan and Mike IsaacSept. 30, 2026Mark Zuckerberg says Meta\u2019s A.I. push is a tremendous success. \u201cOur investments in A.I. are accelerating every major part of our core business,\u201d he has told investors. \u201cEvery sign that we\u2019re seeing in our own work and across the industry gives us confidence in this investment.\u201dBut when Meta files its taxes, it tells the Internal Revenue Service a different story. It claims that its A.I. data centers are a giant experiment that could fail, according to four people with knowledge of the company\u2019s operations.It does this so it can tap into a tax credit intended for research and experimentation. It\u2019s an aggressive interpretation of the tax break, which Meta embraced to claim billions of dollars in tax credits for data center expansion.Characterizing its A.I. data centers as experimental is \u201ckind of wild and out there,\u201d said Andre Shevchuck, a partner at the advisory firm BPM who specializes in the research and experimentation tax credit.AdvertisementSKIP ADVERTISEMENTIndeed, Meta\u2019s own accountants recognize that the strategy is on shaky legal ground. In disclosures buried in securities filings, the tech giant warns that billions in tax savings are vulnerable to being overturned by the I.R.S., in large part because of \u201cuncertainties with our research tax credits.\u201dHere\u2019s what Meta is doing: For tax purposes, the company classifies its enormous, multibillion-dollar data centers as \u201cpilot models.\u201d Under a tax credit created in the 1980s to spur innovation, companies can get a rebate for supplies, but only if they are being tested in an experimental effort, not standard business operations. Meta is claiming that the costly A.I. computer chips it buys from companies, including Nvidia, are entitled to a taxpayer-provided discount as part of the experiment.The move caused some unease within Meta\u2019s finance department. The I.R.S. in the past has challenged companies that claimed the credit for basic supplies. While thousands of companies, including other tech giants, get huge benefits from the research tax credit, they do so overwhelmingly for salaries paid to researchers and engineers \u2014 the people carrying out innovation.How Meta\u2019s research tax credits have exploded in recent years\n \n \n \n \n Notes: Included in the data are tech companies with credits of at least $1 billion in the most recent year. Amazon did not break out research credits from other types of tax credits until 2023.Source: Securities filings.Jesse Drucker, Dylan Freedman and Kashmir Hill\/The New York TimesMeta\u2019s use of the tax break for the data centers has not been previously reported. The New York Times reviewed securities filings and conducted multiple interviews, including with the people familiar with Meta\u2019s operations, who spoke on the condition of anonymity to discuss proprietary matters.AdvertisementSKIP ADVERTISEMENTThe company started claiming the credit for the data centers two years ago. Since then, Meta\u2019s savings from the credit have soared, trimming almost $4 billion off its tax bill last year, filings show. Meta is now the biggest beneficiary of the tax credit among publicly traded companies, a Times review of securities filings found.Aggressive bets like these often pan out for big companies: Even if the I.R.S. balks, companies can settle disputes and still wind up ahead.Meta is already in one sizable dispute with the I.R.S. over this tax break, for using it to subsidize its chief executive\u2019s multibillion-dollar pay package. In 2013, Meta claimed that $4.1 billion of stock options exercised by Mr. Zuckerberg counted as a research expense because he helped invent new software, such as Facebook\u2019s News Feed. The I.R.S. is trying to claw back the company\u2019s resulting $355 million in tax savings, court filings show.The social media company\u2019s stock is soaring, and it is now worth nearly $2 trillion thanks in part to how its A.I. efforts have improved Instagram, WhatsApp and Facebook. This month, Meta released Muse, a personal A.I. agent that immediately became the most downloaded app for iPhone and Android users. Meta and other tech giants\u2019 A.I. efforts have also been helped by an accelerated write-off for research and development expenses that stemmed from the One Big Beautiful Bill Act, passed in 2025.\u201cMeta is one of the largest investors in research and development in the United States,\u201d said Andy Stone, a company spokesman. \u201cOver the last five years, Meta invested $200 billion in R&D \u2014 $57 billion in the last year alone, advancing frontier research, building new technology and supporting American jobs. Like other companies that invest at this scale, we use the tax incentives Congress established decades ago to encourage this type of domestic investment.\u201dAdvertisementSKIP ADVERTISEMENTA Very Favorable Tax CreditThe tax break dates to the first year of the Reagan administration, when Japan was a global leader in technological innovation. Business lobbyists and legislators were worried that America\u2019s fledgling tech sector would fall behind, so Congress created the Research & Experimentation Tax Credit as an incentive to take risks and invest in inventions that might not pan out commercially. A few years after the credit was created, a government report said it had been used to develop, among other things, electronic banking equipment and drugs to treat cancer.Tax rules already permitted tech companies to write off research expenses from their taxable income. The new credit was even more generous and could be taken on top of the deduction. But it was harder to qualify for. Companies have to meet a complex four-part test to prove they are running an experiment, not just rolling out a new product.In the summer of 2024, Meta was ramping up its efforts to compete in the Silicon Valley A.I. race, breaking ground on tens of thousands of acres of data centers across the country. This was an expensive endeavor. One of the biggest expenses of any A.I. data center was computer chips, which are made by companies like Nvidia and cost thousands of dollars each. A Meta employee overseeing the build-out had a creative idea to offset the costs: Tap the credit.ImageChips, like these from Nvidia, are the backbone of A.I. data centers.Credit...Christie Hemm Klok for The New York TimesThe credit is meant to spur innovation by encouraging companies to tackle unsolved problems and technical challenges. While Meta is testing different physical layouts for server racks and looking for the best way to network thousands of chips for A.I. training, the chips themselves are known to work. They have been at the center of A.I.\u2019s progress for the last decade and turned Nvidia into the world\u2019s most valuable company.AdvertisementSKIP ADVERTISEMENTSome in Meta\u2019s finance department questioned whether this tactic would pass muster with the I.R.S., according to a person familiar with the matter. The I.R.S. has rejected other companies\u2019 efforts to claim the credit for \u201cproven and commercially available equipment and technology.\u201dThe company sought advice from lawyers at multiple firms, who pointed to a relevant case from 2021, in which a federal judge denied the research tax break to an Indiana shipbuilder for the cost of building new types of vessels. Simply creating a new product wasn\u2019t enough; a company must pinpoint the specific components of a project that were technically uncertain and prove it used scientific experiments to overcome that uncertainty.One of the lawyers Meta consulted was Jeffrey Moeller at Ivins, Phillips and Barker, people familiar with the conversations said. Mr. Moeller represented the pharmaceutical maker Bayer in a $200 million dispute with the I.R.S. over research tax credits. In an interview, he would not comment specifically on Meta. But he did say the rules could permit claiming the credit on commercially available, proven products \u2014 if they were supplies required to resolve the uncertainty of a project.Another lawyer consulted by Meta, those people said, was Alex Sadler, a former Department of Justice tax lawyer and now a partner at Morgan Lewis, which declined a request to interview him. But when he spoke at a tax conference in Virginia this month, Mr. Sadler said that pilot models were an \u201carea of controversy\u201d and that the I.R.S. \u201cdoesn\u2019t like\u201d when companies characterize commercial production as research to claim the credit. The I.R.S. takes issue with the use of the research tax credit for \u201cbig things,\u201d he said.\u201cWhat if we have a $10 billion data center that does cool stuff that hasn\u2019t really been done?\u201d he said. \u201cIs all the cost a research expenditure?\u201dAdvertisementSKIP ADVERTISEMENTAfter a few months of deliberation, Meta took the plunge. It started labeling chips bound for A.I. data centers differently for tax purposes from those sent to standard data centers, two people with knowledge of the matter said.Risky BusinessThe strategy has been lucrative. Meta said the research tax credit shaved $2 billion off its taxes in 2024, and then $3.9 billion in 2025.That is a significant increase from the $700 million the company reported in 2023, the year before it embarked on its data center strategy.At the very top of the company, Meta executives kept the tax strategy close to the vest, two people with knowledge of the discussions said.AdvertisementSKIP ADVERTISEMENTBut because the I.R.S. was likely to challenge this new and untested accounting magic, the company had to acknowledge the risk in a securities disclosure called \u201cunrecognized tax benefits.\u201d That is essentially the gap between what Meta paid to the I.R.S. and how much it might owe if tax authorities challenge its maneuvers. It\u2019s a warning to investors that Meta made a bet, and the amount of the gap reflects the odds of losing, as determined by a company\u2019s tax advisers.ImageA Meta A.I. data center under construction in northeast El Paso.Credit...Paul Ratje for The New York TimesSince Meta began its research credit A.I. strategy, the amount set aside to cover those tax bets increased 45 percent \u2014 to $18.74 billion today from $12.9 billion two years ago. The contributing factor listed first in its annual financial filing is \u201cuncertainties with our research tax credits.\u201dOther major tech companies, including Apple, Amazon, Alphabet and Microsoft, also report research tax credits of more than $1 billion a year. But none of them have flagged the research tax credit as a risk in their financial reports to investors or disclosed whether they have used it for A.I. data centers.\u201cMeta is claiming billions of dollars in tax benefits that its own accountants are telling investors are at risk of being overturned by the I.R.S.,\u201d said Lisa De Simone, a former tax adviser at EY who teaches accounting at the University of Texas business school.Mr. Stone, the Meta spokesman, said that \u201cunrecognized tax benefits are simply a mandated accounting measure of uncertainty.\u201d He called them a \u201csnapshot in time reflecting the status of unresolved issues and reflect many different types of uncertainties.\u201dAdvertisementSKIP ADVERTISEMENTAnother of Meta\u2019s unresolved issues concerns one of the biggest U.S. Tax Court disputes in the country\u2019s history: The I.R.S. is seeking nearly $16 billion in taxes and penalties on profits it says the company shifted to the Cayman Islands from the United States.Tax credit experts said Meta was again entering choppy waters by taking this huge tax break on data centers. Shawn Marchant, who runs the credit and incentives practice at Tanner and advised on the research incentive for more than a decade at EY, said he would be \u201cskeptical\u201d of claiming it for all the computer chips in all the data centers. Mr. Shevchuck, the tax adviser at BPM, proposed one way it might work: \u201cIf you had a data center that you\u2019re building out to cure cancer.\u201dMeta declined to answer questions about what made its A.I. data centers experimental, and why tens of billions of dollars of chips and computing equipment qualified for the research tax credit.Meta\u2019s auditor, EY, had to sign off on the plan. The global tax and accounting firm was among the firms that Meta consulted on using the tax credit in the first place. EY has since pitched other companies on using the research credit to buy computer chips for A.I. training.Innovation or Creative Accounting?James Shannon, a former U.S. representative from Massachusetts who sponsored the research tax credit in 1981, said it had been intended to support \u201cpeople power, knowledge, information,\u201d and not \u201cmaking things.\u201d He was surprised to hear that a technology company would use the credit for supplying A.I. data centers.AdvertisementSKIP ADVERTISEMENT\u201cThis has gone way, way beyond what anybody could have imagined,\u201d Mr. Shannon said.Whether the tax break inspires the innovation that he and other lawmakers sought is a matter of debate. Some companies appear to use the credit for spending they would do anyway, according to a study last year by economists at the University of Southern California. If companies \u201csimply reclassify existing spending as R&D,\u201d the researchers wrote, they are getting the tax breaks \u201cwithout meaningfully financing innovation.\u201dThe credit has become the second-most expensive federal corporate tax break, behind only the reduced rate applied to offshore profits. In its most recent estimate, the congressional Joint Committee on Taxation projected the credit would cost the government $32.1 billion in 2025. Meta alone would be responsible for more than a tenth of that.Dylan Freedman and Kitty Bennett contributed research.AdvertisementSKIP ADVERTISEMENT",
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