The case is back in the spotlight after a New York Times investigation published Sept. 30 reported that Meta now applies the same tax break to its AI data centers, which it classifies as experimental "pilot models" for tax purposes. Meta's securities filings show the research credit cut its taxes by $3.9 billion in 2025, up from $2 billion in 2024 and $700 million in 2023.
So how does a CEO's payday end up on a research tax form? Here's a closer look at the fight — and what it means if you get paid in stock options.
How Zuckerberg's stock options became a research tax credit
Congress created the research and experimentation credit in 1981 to encourage companies to spend more on research. The basic credit is worth 20% of a company's qualified research spending above a base amount, and it comes straight off the tax bill. Pay for employees who do the research, or directly supervise or support it, counts.
Facebook claimed more than $618 million in research credits for 2012 and 2013, according to the IRS's filing. About $355 million of that came from Zuckerberg's options, granted in November 2005 and stretched to 120 million shares by later stock splits. Meta argues roughly $4.1 billion of his payout counts as wages for research he performed.
So does Meta have a case?
In a 1995 case involving Sun Microsystems, the Tax Court ruled that employee stock option income can count as wages for the research credit. It relied on a 1992 ruling involving Apple.
The IRS's audit guide for the credit also counts option income as research wages in the year it's exercised, as long as the employee's work qualifies.
Why the timing of Zuckerberg's options matters
Meta's case hinges on timing. The company told the court the year that matters is 2005, when the options were granted and when, according to Meta's filing, Zuckerberg "personally wrote software code" and oversaw Facebook's technology. Meta also argues the IRS has looked to the grant date of stock options for 20 years, including in its own cost-sharing rules.
The IRS sees it differently. The agency says what matters is the vesting period, from Jan. 1, 2008, through Nov. 1, 2010, and that only Zuckerberg's work during that span counts. It also points to the option contract itself, which says the options weren't granted as payment for work done before vesting began.
