The IRS sent a surprise bill to Microsoft, hitting the company with a $28.9 billion bill for back taxes and penalties spanning a decade, starting in 2003.
Microsoft was notified on September 26,2023 via Notices of Proposed Adjustment (NOPA) from the IRS according to an SEC filing. The issues that generated this debt pertains to intercompany transfer pricing.
Microsoft states that it disagrees with the proposed adjustments and will contest the NOPA through the IRS’s administrative appeals office. If necessary, the issue will be taken to court, which seems probable at this point.
A statement embedded in the SEC filing from Daniel Goff, Corporate Vice President Worldwide Tax and Customs, shares some color on the situation. He doesn’t expect the issues to be resolved anytime soon and the process could take years.
“The IRS says Microsoft owes an additional $28.9 billion in tax for 2004 to 2013, plus penalties and interest,” Goff wrote. “The IRS’s proposed adjustments do not represent a final determination. Not reflected in the proposed adjustments are taxes paid by Microsoft under the Tax Cuts and Jobs Act (TCJA), which could decrease the final tax owed under the audit by up to $10 billion.”
Microsoft disagrees with the IRS’s proposed adjustments and fines, citing that the company has always followed the rules and paid taxes owed. Microsoft says that it has paid over $67 billion in taxes to the U.S. since 2004.
Microsoft made $72.4 billion profit in its fiscal year 2023.
The IRS audit covering 2004 to 2013 has concluded, and the results do not have any bearing on present-day operations. It’s not clear if operations past 2013 are being examined.