IRS Says Microsoft Owes $29 Billion in Back Taxes

Microsoft revealed in a regulatory filing that it owes the U.S Internal Revenue Service (IRS) $28.9 billion in back taxes, plus penalties and interest. It will appeal this finding, first with the IRS and then in federal court if required.

“On October 11, 2023, Microsoft announced the receipt of Notices of Proposed Adjustment (‘NOPAs’) from the Internal Revenue Service (the ‘IRS’) for the tax years 2004 to 2013,” the software giant revealed in an 8-K regulatory filing earlier today. “The IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of September 30, 2023, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.”

The announcement referenced above is also included in the 8-K filing: Microsoft has been audited by the U.S. government because of ongoing issues with the way it allocated income and expenses, a process known as transfer pricing, for tax years dating back to 2004. Since this timeframe, Microsoft has “changed its corporate structure and practices” and says that the issues are relevant only to the past.

“Microsoft disagrees with these proposed adjustments and will pursue an appeal within the IRS, a process expected to take several years,” Microsoft corporate vice president Daniel Goff notes in the filing. “We believe we have always followed the IRS’s rules and paid the taxes we owe in the U.S. and around the world. Microsoft historically has been one of the top U.S. corporate income taxpayers. Since 2004, we have paid over $67 billion in taxes to the U.S.”

Microsoft says it hopes to reach a “mutual resolution” with the IRS in the coming years.