Ouch: IRS Says Microsoft Owes $29 Billion In Back Taxes

pcmag.com:

Microsoft risks owing a staggering $29 billion to the US government  if the IRS gets its way. 

On Tuesday, the software giant announced it’s currently on the hook to pay $28.9 billion in back taxes following an IRS audit. 

The federal agency has been examining Microsoft’s finances for the period between 2003 and 2014. The investigation found that the company owes the $28.9 billion, plus penalties and interest. 

“The main disagreement is the way Microsoft allocated profits during this time period among countries and jurisdictions,” the company wrote in a blog post. “Because our subsidiaries shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations, the subsidiaries were also entitled to the related profits.”  

So it looks like Microsoft under-reported its US profits for a decade, which resulted in the IRS taking action. On September 26th, the federal agency sent “Notices of Proposed Adjustments” to Redmond about the owed amount.   

For Microsoft, the good news is that the IRS’s finding isn’t a final ruling on the matter. The company plans on challenging the tax issue, first through the agency’s “administrative appeals office and, if necessary, judicial proceedings.”

The appeals process could also take several years, allowing Microsoft to avoid a financial hit in the short time. Redmond adds that under the Tax Cuts and Jobs Act, which was passed in 2018, the final tax bill could be reduced by up to $10 billion. 

In the blog post, Microsoft added: “We strongly believe we have acted in accordance with IRS rules and regulations and that our position is supported by case law.” But if the company is forced to pay up, Microsoft likely could do so in a single year. In 2022, the