Microsoft May Owe $28.9 Billion in Back Taxes to the IRS

On Wednesday, the Internal Revenue Service (IRS) notified Microsoft that it may owe $28.9 billion in back taxes, plus penalties and interest, from 2004 through 2013. The IRS says it believes that as of Sept. 30, its tax adjustments are correct and will elevate the issue to judicial proceedings, if necessary.

Microsoft disputed the claims, saying in a press release that the IRS’ adjustment is not final and does not take into account the Tax Cuts and Jobs Act, which the company says could decrease its financial obligations by up to $10 billion. The IRS said in an 8-K filing that Microsoft confirmed it received the Notices of Proposed Adjustment on Oct. 11, but it doesn’t expect the situation to be resolved within the next 12 months.

Microsoft’s VP for worldwide tax and customs, Daniel Goff, said in the company’s press release that it has changed its practices and corporate structure since 2013, and that “… the issues raised by the IRS are relevant to the past but not to our current practices.” Goff added that Microsoft will work with the IRS to hopefully “reach a mutual resolution” but denies that the company owes the taxes claimed by the IRS.

“Microsoft disagrees with these proposed adjustments and will pursue an appeal within the IRS, a process expected to take several years,” Goff said. “We believe we have always followed the IRS’ rules and paid the taxes we owe in the U.S. and around the world. Microsoft historically has been one of the top U.S. corporate income taxpayers. Since 2004, we have paid over $67 billion in taxes to the U.S.”

The 8-K filing comes after the IRS announced last month that it was adding AI tools to identify potential tax evasions, according to a press release. The IRS said at the time that it was focusing on wealthy taxpayers, including companies, that used “sophisticated schemes to avoid taxes” and would identify individuals with more than $250,000 in recognized tax debt.

The company was recently targeted by the Federal Trade Commission (FTC) which strove to secure an injunction against Microsoft’s acquisition of Activision Blizzard for $68.7 billion. Microsoft successfully overcame that hurdle after the U.S. Appeals Court for the 9th Circuit denied the FTC’s motion to block Microsoft’s acquisition. Microsoft is expected to close its deal with Activision on Oct. 13.

Microsoft did not immediately respond to Gizmodo’s request for comment sent outside regular working hours.