Microsoft owes an astounding $28.9 billion in back taxes, IRS says after audit

Microsoft owes an astounding $28.9 billion in back taxes, IRS says after audit

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Microsoft CEO Satya Nadella. Drew Angerer/Getty Images

Microsoft will appeal a decision by the US Internal Revenue Service that the software maker owes at least $28.9 billion in taxes related to how it allocated income and expenses among global subsidiaries from 2004 to 2013.


The company said Wednesday in a regulatory filing that it disagreed with the “notices of proposed adjustment” to its federal tax filings and will appeal the decision.

The dispute centers on a 2012 IRS audit into transfer pricing, a method used by companies to shift profits to tax havens and avoid the US corporate tax rate. At the time, Microsoft had been moving billions of dollars in profits to such jurisdictions as Puerto Rico, a US territory that levies a much lower corporate rate. 

The company has changed its corporate structure and practices since the years covered by the audit, so the issues raised by the IRS aren’t relevant to the way income is recorded currently, Daniel Goff, a Microsoft vice president, said in a blog post.

Goff wrote that Microsoft has been working with the IRS for almost a decade to address questions about how the company allocates income and expenses for tax purposes. The Redmond, Washington-based company said the proposed additional tax bill of $28.9 billion doesn’t include taxes paid under the Tax Cuts and Jobs Act of 2017, which could reduce the tally by as much as $10 billion.

“We strongly believe we have acted in accordance with IRS rules and regulations and that our position is supported by case law,” Goff said in the post. “We welcome the IRS’s conclusion of its audit phase which will provide us with the opportunity to work through these issues at IRS Appeals, a separate division of the IRS charged with resolving tax disputes.”

Microsoft shares were little changed in extended trading after closing at $332.42 in New York.

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