The Internal Revenue Service (IRS) — the U.S. government agency responsible for tax collection and tax law enforcement — and Microsoft have had a long relationship wherein the former is often of the opinion that the latter isn’t paying as much tax as it should. In the latest chapter in an IRS audit, the government agency is now suing former Microsoft CEO Steve Ballmer, and former Microsoft Business Division President Jeff Raikes, among several other former and current executives. Furthermore, the IRS demands access to the company’s information so that it could decide whether Microsoft paid enough in taxes a decade ago. If found guilty, Microsoft may end up paying millions and billions of dollars.
As mentioned above, this isn’t the first time IRS has set its eyes on the Redmond-based company. The lawsuits, filed on Friday in federal court in Seattle, however, could be the longest-running IRS investigation of Microsoft’s corporate structure. The IRS is keenly interested in the period between 2004 to 2006, where it believes that the company avoided “billions of dollars” by moving software-selling rights between international subsidiaries with lower taxes.
“As a global business, Microsoft adheres carefully to the laws and regulations of every country in which we operate,” the spokesman said.
The IRS is particularly interested in knowing whether the Redmond-based company is complying with the “transfer-pricing” law. The law states that the companies will be charged at a reasonably fair market rate for the goods and services they buy and sell between international arms. This is done to ensure that the companies don’t ship valuable property overseas to avoid U.S. taxes.
The IRS says that the nature of these investigations are routine and crucial for the government as it helps them determine tax liabilities in a system based on self-reporting. The IRS only takes the matter to court when a taxpayer doesn’t comply with the regulations. In response, Microsoft’s lawyers said that the company is cooperating with IRS’s requests. They also noted that have previously made available over 1.2 million pages of documents and allowed the IRS to interview over 50 employees.
As per the court filings, last month IRS sent a summons to Ballmer, and nine other former and current employees, including former Windows and server development chief Jim Allchin, and former chief strategy officer Craig Mundie. A Microsoft attorney said that the company won’t be making the executives available until both the parties agree on the terms for these interviews.
Further reading: IRS, Microsoft, Steve Ballmer