The IRS just dropped approximately $29 billion in back taxes on Microsoft. Oops.

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The disputed fees are the result of an audit spanning 2004 through 2013.

Satya Nadella looking sad with raining money
(Image credit: Windows Central)

What you need to know

  • Microsoft has been under tax audit by the Internal Revenue Service for nearly a decade.
  • The IRS audit has proposed that Microsoft is liable for $29 billion in back taxes, in addition to the $10 billion the corporation had already paid.
  • Microsoft disagrees with the IRS's proposed adjustment and plans to appeal, though it would take several years for a court to make a final decision in the case.

The US Internal Revenue Service (IRS) has sent Microsoft Notices of Proposed Adjustment as a result of the federal agency's ongoing tax audit of the company. Microsoft issued a statement regarding the proposed adjustments and declaring its intentions to contest the notices.

Daniel Goff, Microsoft's Corporate Vice President of Worldwide Tax and Customs, penned the blog post from the company, providing a background explainer on the IRS audit. According to Microsoft, the company has been working with the IRS regarding the agency's concerns over how the company had allocated income and expenses for tax years ranging from 2004 through 2013. 

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With the IRS having issued Notices of Proposed Adjustment to Microsoft, the auditing period of the investigation is expected to come to a close. It will now be up to Microsoft and the IRS to agree to a process to resolve the $29 billion in back taxes Microsoft owes the federal government, along with all due penalties and interest.

Microsoft was required to pay a tax bill of $10 billion previously as a result of the Tax Cuts and Jobs Act, and the statement from Goff indicates that Microsoft believes this payment should decrease the final bill from the IRS. The IRS, however, did not include the $10 billion payment in its Notices and has seemingly taken the position that the payment is not relevant to the $28.9 billion in new charges.

According to Goff, Microsoft has undergone changes to its corporate structure and practices since the back taxes were accrued that would prevent any further issues with the IRS. Microsoft's statement proclaims the company has been and will continue to be compliant in working with the IRS to come to a resolution regarding the back taxes. However, Microsoft has also alluded to its willingness to contest the IRS via the IRS Appeals division process and through the judiciary system. The process could ultimately take several years to reach a resolution.

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Cole Martin
Cole Martin
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Cole is the resident Call of Duty know-it-all and indie game enthusiast for Windows Central. She's a lifelong artist with two decades of experience in digital painting, and she will happily talk your ear off about budget pen displays. 

11 Comments Comment from the forums
  • wojtek
    corporations need to stop circumvent the laws and start paying taxes instead of being "smart" with legions of lawyers and accountants looking for "tax optimisation"... 🙄
    Reply
  • Jcmg62
    As a small business owner with nowhere to hide when it comes to paying tax, this brings me great joy.

    I hope Microsoft get slammed.

    I can't afford to pay an army of consultants to dream up ways of tax avoidance and borderline tax fraud.

    They want us to believe that this is in the past, but let's consider the present. Microsoft are willing to pay another army of lawyers to fight the IRS rather than pay what they owe.

    They haven't changed a bit.

    I hope I live to see the day when effective international tax laws start cracking down on big tech.
    Reply
  • wojtek
    Jcmg62 said:
    They want us to believe that this is in the past, but let's consider the present. Microsoft are willing to pay another army of lawyers to fight the IRS rather than pay what they owe.

    They haven't changed a bit.

    I hope I live to see the day when effective international tax laws start cracking down on big tech.

    Hear, hear! Small companies and regular Joes pay the taxes but big corps (not only tech!) and multimilionairs have armies of smaries to avoid paing a dime :/
    Reply
  • GraniteStateColin
    Jcmg62 said:
    As a small business owner with nowhere to hide when it comes to paying tax, this brings me great joy.

    I hope Microsoft get slammed.

    I can't afford to pay an army of consultants to dream up ways of tax avoidance and borderline tax fraud.

    They want us to believe that this is in the past, but let's consider the present. Microsoft are willing to pay another army of lawyers to fight the IRS rather than pay what they owe.

    They haven't changed a bit.

    I hope I live to see the day when effective international tax laws start cracking down on big tech.

    You seem to be contradicting yourself: you agree that paying taxes sucks, but you want the IRS to drill their probes and suckers as deep into MS as possible? Isn't that hypocritical? I could understand either supporting individuals and businesses successfully fending off the IRS or supporting the IRS in its collection efforts in general across the board. But you seem to be saying that you want the IRS to harshly enforce the taxes against others but not against you.

    Let's be clear: no one, not even the IRS, is claiming the MS committed fraud. The dispute is over which accounts MS used to allocate payments and revenues. Tax attorneys advised MS that what they were doing was legal and proper. The IRS disagrees. There was no illegal intent. That makes this a case purely based on ambiguity in the tax code. Would any of us want legal ambiguity to be used against us?

    I do understand and agree with the distinction you're making that large corporations are able to afford regulatory complexity more easily than smaller ones. And this is why regulations always help the big guys relative to the small entrepreneurs who can't afford the accounting or legal support to navigate them, but on taxes and favoring a tax judgement by the IRS? No. That's a pox on all our houses, big and small. If there's a problem, it's with the overly complex tax code, which is the government's fault, not Microsoft's.
    Reply
  • GraniteStateColin
    wojtek said:
    corporations need to stop circumvent the laws and start paying taxes instead of being "smart" with legions of lawyers and accountants looking for "tax optimisation"... 🙄

    That's ridiculous. Why does Congress pass tax code with incentives to do certain things? Because they want to incentivize those behaviors. It could be onshoring employment, R&D, education, etc. After the 2009 collapse, they wanted to incent capital purchases, so they amended the code to allow full asset depreciation in the year of purchase (e.g., normally, if I buy a computer, I can treat 1/3 the cost as an expense in each of the 3 years from purchase, but if I could instead deduct it all in year 1, that would effectively make it cheaper because $1 this year is worth more than $1 next year, which has the net effect of incentivizing buying more computers). They provide tax breaks to encourage the largest corporations in a position to move the economy to engage in those activities. That is neither good nor bad, it's just the law and the incentives change with the economic times and legislative preferences.

    If you don't like the law, that's absolutely fair. If you want fewer regs so that the big corps don't have the advantage they gain from lawyers and accountants, vote for a simpler tax code. But your beef is not with MS, it's with the government for a murky and ambiguous code.

    It's not like MS has committed tax fraud. If that were the case, I would 100% agree with you -- stick it to them. This is just a dispute over the code itself and whether certain fund transfers were allocated to right or wrong account. If you wouldn't want the IRS auditing you when you followed the advice of your accountant, then you should not want it going after MS (or anyone else) for following theirs, whether it's a local accountant or a team of tax lawyers.
    Reply
  • Arun Topez
    Jcmg62 said:
    As a small business owner with nowhere to hide when it comes to paying tax, this brings me great joy.

    I hope Microsoft get slammed.

    I can't afford to pay an army of consultants to dream up ways of tax avoidance and borderline tax fraud.

    They want us to believe that this is in the past, but let's consider the present. Microsoft are willing to pay another army of lawyers to fight the IRS rather than pay what they owe.

    They haven't changed a bit.

    I hope I live to see the day when effective international tax laws start cracking down on big tech.
    I agree. These big corps have so many loop holes and offshore accounts to avoid taxes. Microsoft is also very well known for hiring mostly contract and vendor workers that work on behalf of them as employees, instead of hiring mostly full-time permanent employees, to avoid paying taxes and benefits. And then chopping them without notice. While I normally don't side with IRS, they wouldn't have brought this up if they didn't find something sus. But I'm sure this is not just MS but also many large Corps.
    Reply
  • Village_Idiot
    All of you who want to see Microsoft get slammed. The cost of any Microsoft products will go up. Do you really think it will eat the cost?

    Small businesses are going get hit too.
    Reply
  • wojtek
    Village_Idiot said:
    All of you who want to see Microsoft get slammed. The cost of any Microsoft products will go up. Do you really think it will eat the cost?

    Small businesses are going get hit too.
    Small business already pay regular ta because they can't afford army of lawyers that hunt for more and more loopholes... 🙄

    also - no one is forcing you to use (and pay) for MS products - there are alternatives... 🤷‍♂️
    Reply
  • Village_Idiot
    wojtek said:
    Small business already pay regular ta because they can't afford army of lawyers that hunt for more and more loopholes... 🙄

    also - no one is forcing you to use (and pay) for MS products - there are alternatives... 🤷‍♂️
    Thank you, professor, for the sage comment. Of course, I know I'm not being forced to pay Microsoft.

    I had a really long explanation as to why I choose to voluntarily pay Microsoft for its amazing services it is providing me. But, the juice just isn't worth the squeeze.

    By saying that this won't affect small and medium (oh and most government agencies (federal, state, and local), as well as schools (many schools use or are switching to Microsoft services). is spiteful, naive, and uneducated.

    But hey, keep doing what you do best. You go! Keep thumbing your nose at Microsoft. I'm sure they are listening.
    Reply
  • wojtek
    Village_Idiot said:
    I had a really long explanation as to why I choose to voluntarily pay Microsoft for its amazing services it is providing me. But, the juice just isn't worth the squeeze.
    So if it's so amazing you wouldn't mind paying any amount for this bliss? inni't mate?

    Village_Idiot said:
    By saying that this won't affect small and medium (oh and most government agencies (federal, state, and local), as well as schools (many schools use or are switching to Microsoft services). is spiteful, naive, and uneducated.

    clappity clap that those have become hostages of "the ecosystem"... shrug

    Village_Idiot said:
    But hey, keep doing what you do best. You go! Keep thumbing your nose at Microsoft. I'm sure they are listening.

    It's you who is butthurt :D I guess your nick was selected deliberately :D
    Reply