The Internal Revenue Service (IRS) has recently claimed that tech giant Microsoft owes a significant sum of approximately $30 billion in back taxes, a sum that is nearly three times the amount Microsoft invested in OpenAI earlier in the year.
This tax bill stems from a notification sent to Microsoft by the IRS, indicating that the company is responsible for a $28.9 billion tax balance, coupled with penalties and interest charges. The IRS has connected these charges to the period between 2004 and 2013, primarily as a result of a past IRS audit linked to Microsoft’s financial activities during that time frame.
Microsoft’s corporate vice president for taxes, Daniel Goff, stated in a blog post that the tax adjustments were a direct consequence of the now-concluded IRS audit concerning Microsoft’s previous financial practices. Goff highlighted that Microsoft has since restructured its corporate framework and adjusted its practices, rendering the IRS’s concerns irrelevant to their present operations.
A noteworthy aspect is that up to $10 billion of the tax bill may be eligible for reduction due to changes in the tax code brought about by the Tax Cuts and Jobs Act of 2017, which lowered corporate income tax rates. Microsoft intends to engage in negotiations to lower the total amount.
In a statement filed with the Securities and Exchange Commission (SEC), Microsoft firmly expressed its disagreement with the proposed tax adjustments and affirmed its intention to appeal within the IRS. The appeal process is anticipated to extend over several years. Microsoft also emphasized its history of adhering to IRS regulations and paying taxes as owed both in the United States and internationally.
Furthermore, Microsoft contended in the same SEC filing that the $67 billion it had paid in taxes since 2004, the commencement of the audit period, was adequate. They asserted their commitment to vigorously contest the IRS’s proposed alterations.
This substantial tax bill is particularly significant when considered in the context of Microsoft’s recent investment of $10 billion in OpenAI at the outset of 2023. Moreover, the news of the tax bill arrived shortly before Microsoft’s anticipated acquisition of Activision Blizzard for $68.7 billion. This acquisition had encountered opposition from the Federal Trade Commission (FTC), which alleged that it was a move designed to curtail competition in favor of Microsoft’s Xbox console line.
While it is not unusual for a corporation of Microsoft’s scale to confront substantial tax obligations, their determination to challenge federal agencies over this amount is noteworthy, especially given their ongoing substantial business ventures.
In summary, Microsoft is currently facing a substantial back tax bill of approximately $30 billion, almost three times their recent investment in OpenAI. The IRS’s claim is rooted in an audit of Microsoft’s past financial practices, which they argue no longer apply to their current operations due to corporate restructuring.