Microsoft Sues IRS Over Law Firm Contract Tied to Audits

(Bloomberg) Microsoft Corp. sued the Internal Revenue Service seeking information about the agency’s contract with a law firm tied to audits of the software maker’s transfer pricing practices.

Microsoft wants the complete government contract between the IRS and Quinn Emanuel Urquhart & Sullivan LLP, the firm assisting the agency in examining federal income tax returns for 2004 through 2009, according to the complaint filed today under the Freedom of Information Act in federal court in Washington. The IRS “unlawfully withheld” the information, Microsoft said.

Microsoft submitted a public records request on September 22 seeking information on the contract entered in May for $2.2 million, according to the filing. To date, the IRS hasn’t disclosed the records, Microsoft said.

Quinn Emanuel referred questions to IRS officials, who declined to comment on the complaint.

 

U.S. Taxes

U.S.-based companies owe U.S. taxes on profits they earn around the world. They receive credits against that liability for taxes paid to foreign governments and can defer U.S. taxes until they bring the money home.

As of June 30, Microsoft had not accounted for taxes on $92.9 billion in profit outside the U.S. If the company brought the money home to the U.S., it would owe $29.6 billion in taxes, Microsoft said in its annual report filed July 31 with the U.S. Securities and Exchange Commission.

Microsoft said in the regulatory filing that it settled a portion of the IRS audit for tax years 2004 to 2006 during the third quarter of fiscal year 2011. The company remains under audit for those years with the primary unresolved issue, as of June 30, relating to transfer pricing. The company is also subject to IRS examination for tax years 2007 to 2013, according to the filing.

The issue “could have a significant impact on our consolidated financial statements if not resolved favorably,” the company said in the filing “We have not received a proposed assessment for the unresolved issues and do not expect a final resolution of these issues in the next 12 months.”

The case is Microsoft Corp. v. Internal Revenue Service, 14-cv-01982, U.S. District Court, District of Columbia (Washington).

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