Microsoft to Appeal $28.9 Billion IRS Tax Claim

Microsoft Corp. is planning to appeal the decision by the Internal Revenue Service (IRS), which states that the software giant owes at least $28.9 billion in taxes related to how the company allocated income and expenses among its subsidiaries worldwide from 2004 to 2013.

The company announced on Wednesday in a regulatory filing that it disagrees with the "proposed adjustment notice" regarding their federal tax filings and will appeal the decision.

This dispute centers around a 2012 IRS audit related to transfer pricing, a method used by companies to shift profits to tax-favorable jurisdictions and avoid the U.S. corporate tax rate. At that time, Microsoft had shifted billions of dollars to jurisdictions like Puerto Rico, a U.S. territory with significantly lower corporate tax rates.

The company has since restructured its corporate structure and practices since the years covered by the audit, making the issues raised by the IRS irrelevant to how income is currently reported, said Daniel Goff, Microsofts vice president, in a blog post.

Goff wrote that Microsoft has been cooperating with the IRS for nearly a decade to answer questions about how the company allocates income and expenses for tax purposes. The Redmond, Washington-based company stated that the proposed additional tax bill of $28.9 billion does not account for taxes paid under the 2017 Tax Cuts and Jobs Act, which could reduce the total by as much as $10 billion.

"We are highly confident that we have complied with IRS rules and regulations and that our position is supported by case law," Goff said in the post. "We welcome the IRSs audit conclusion that will give us the opportunity to resolve this matter in IRS Appeals, a separate division of the IRS responsible for settling tax disputes."