Although Microsoft reported it took an income tax charge due to an "IRS audit adjustment" as part of its second quarter fiscal 2015 earnings reported on January 26, the company's tax battle with the IRS is not yet over.
Microsoft's effective tax rate for the quarter was 25 percent, which Chief Financial Officer Amy Hood called "higher than expected due to the previously mentioned income tax charge for an IRS audit adjustment." (Microsoft's tax rate last fiscal year was 21 percent, noted the Seattle Times.)
I asked Microsoft officials if the just-reported adjustment had to do with Microsoft's ongoing battle with the IRS over whether Microsoft adhered to tax law in its transfer of software-selling rights to countries and territories with lower tax rates.
A spokesperson said the company had no comment beyond what executives said as part of its latest earnings report.
However, there was a bit of additional detail in Microsoft's 10-Q report, published on January 26:
The short of it: As of January 26, Microsoft and the IRS still had not resolved their dispute and Microsoft officials aren't expecting that to happen within the next 12 months. But Microsoft execs also aren't expecting a "significant" impact on its income tax contingencies during that period, according to its filing.
Microsoft's back-and-forth with the IRS accelerated late last year.
In October 2014, the IRS served Microsoft with a summons, seeking more information about the company's transfer-pricing practices in Bermuda and Puerto Rico.
In November 2014, Microsoft sued the IRS, seeking information about the agency's contract with law firm Quinn Emanuel Urquhart & Sullivan LLP, which the IRS hired in May to examine Microsoft's transfer-pricing practices. In late December 2014, the IRS sued former Microsoft CEO Steve Ballmer and a number of other former and current Microsoft officials in an attempt to compel them to testify in the ongoing investigation into the company's tax practices.
Microsoft's contention: the IRS is attempting to continue to extend the statute of limitations in a case that's been underway for nearly eight years. In a December 31 filing, Microsoft sought to consolidate the summons enforcement cases.
Microsoft isn't the only tech company the IRS is battling over taxes; it also has been fighting Amazon over similar pricing issues.
ZDNet
