Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

Microsoft is Presently Being Audited By the IRS

Author: Scarinci Hollenbeck, LLC

Date: January 14, 2015

Key Contacts

Back

Microsoft is being audited by the IRS and they demand leaders testify

Microsoft-is-Currently-Being-Audited-By-the-IRS-Body

The IRS is suing a number of former and current executives of Microsoft in a bid to force them to testify in an investigation into the company’s corporate tax practices.

According to The Seattle Times, at issue is whether the company is following corporate tax law in its practices of transferring the rights to its software to various subsidiaries in countries and territories of the U.S. with low taxes. This practice is commonly used by multinational corporations with valuable intellectual properties, and reportedly had “billions of dollars of impact” on Microsoft’s taxable income between 2004 and 2006, according to the lawsuit being brought by the IRS.

How it works

Companies that have subsidiaries in countries around the world are supposed to operate as though those subsidiaries were an “arm’s length” away for tax purposes. This means negotiating and dealing fairly with each other instead of setting prices that are favorable to the company come tax time. Frequently, this is not what happen.

Picture a large, multinational company with Subsidiary A in a country or locale with low taxes but a small market for its intellectual goods. Subsidiary B is in a country with higher taxes but a much larger market. Subsidiary B makes $1 billion in profits, but to reduce the overall tax burden, the company shifts the rights to the intellectual goods to Subsidiary A and sets the “price” for Subsidiary B to sell those goods at $1 billion. The result is that Subsidiary B makes no profits on paper, meaning that it has to pay virtually nothing in corporate tax. Subsidiary A has $1 billion in profits and pays the lower taxes on those profits that are mandated by its location.

The Internal Revenue Service appears to believe that this is what is happening in the case of Microsoft, and is attempting to get to the bottom of the issue.

According to GeekWire, the IRS issued a summons to longtime CEO Steve Ballmer at his home in Seattle demanding that he testify on Dec. 8, but he failed to appear. Microsoft had already told the IRS by this point that it was declining to make Ballmer and other former executives available because of a disagreement with the IRS over interview procedures. The IRS is also seeking to interview former chief Jim Allchin, former executive Bill Veghte, former Office division leader Jeff Raikes, former research and strategy chief Craig Mundie, former VP of Microsoft’s Worldwide Partner Group Jon Roskill and former marketing chief Mich Matthews, among others.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
Common Causes of Partnership Disputes and How to Resolve Them post image

Common Causes of Partnership Disputes and How to Resolve Them

Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]

Author: Christopher D. Warren

Link to post with title - "Common Causes of Partnership Disputes and How to Resolve Them"
President Trump's Termination of Member Gwynne Wilcox post image

President Trump's Termination of Member Gwynne Wilcox

On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]

Author: Matthew F. Mimnaugh

Link to post with title - "President Trump's Termination of Member Gwynne Wilcox"
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide post image

How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide

Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]

Author: Christopher D. Warren

Link to post with title - "How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide"
Gross Lease vs. Net Lease: Understanding the Key Differences post image

Gross Lease vs. Net Lease: Understanding the Key Differences

Commercial leases can take a variety of forms, which is often confusing for both landlords and tenants. Understanding the different types, especially the gross lease structure, is important when selecting the lease that best suits your needs. One key distinction between lease types is how rent is calculated and paid. This article addresses the two […]

Author: Robert L. Baker, Jr.

Link to post with title - "Gross Lease vs. Net Lease: Understanding the Key Differences"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!