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The IRS just hit Microsoft with a massive tax bill – here’s why

A new Securities and Exchange Commission (SEC) filing has uncovered a multibillion-dollar tax bill that landed on Microsoft’s desk on September 26, 2023.

According to the 8-K filing, the Internal Revenue Service (IRS) is seeking $28.9 billion as an “additional tax payment,” plus penalties and interest, for tax years covering 2004 to 2013.

The bill, or more officially, Notices of Proposed Adjustment, relates to “intercompany transfer pricing,” according to Microsoft, which is also keen to stress that the audit relates to previous years, and business practices have changed since then.

Microsoft owes $29b+ in tax

In response to the eyewatering bill, Redmond said: “We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings.”

The company also highlights that it has been working with the IRS to address questions about income and expense allocation for tax years dating back to 2004.

Microsoft said that taxes it has already paid under the Tax Cuts and Jobs Act (TCJA) could decrease the bill by around $10 billion, effectively knocking off one-third.

The IRS’s bill is best thought of as a harsh warning because it has yet to conclude its audit. Even then, a dispute between Microsoft and the US’s federal tax arm could go on for several years until the two reach a mutual agreement. This is because, in Microsoft’s eyes, it has acted in accordance with IRS rules and regulations, which adds an extra layer to the process.

In the meantime, Microsoft promises to keep us up-to-date via its public quarterly and annual reports and financial statements.

For now, though, this is just one of many complaints launched against the company, with various antitrust cases happening or continuing to happen globally.

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