Microsoft, a sizable company with its main office in Redmond, Washington, has lost multiple legal battles with the IRS on its tax audit documents.
U.S. District Judge Ricardo Martinez rendered two rulings unfavorably for Microsoft, finding that the Internal Revenue Service (IRS) had lawfully withheld 49,400 pages from publication in accordance with the federal Freedom of Information Act. Additionally, the judge decided that Microsoft was not entitled to more records relating to the company’s contracts with the law firms Quinn Emanuel Urquhart & Sullivan and Boies Schiller Flexner for audit-related services.
What’s this mean for Microsoft?
Not much yet. The legal battle between Microsoft and the IRS has been ongoing for several years, with the audit of tax years 2004 to 2006 still ongoing. In his ruling, the Judge Martinez noted that this year marked the audit’s 16th birthday.
The IRS has released 91,900 pages in total and 13,000 pages in part, with the remaining pages being withheld due to various legal privileges (including the “deliberative process,” which can shield communication from agency officials about steps they are considering).
When the IRS audited Microsoft’s “transfer pricing” for Asia, Southeast Asia, and the South Pacific in 2015, Microsoft filed a lawsuit in Seattle asking for papers about the investigation. In court documents, attorneys for the U.S. Justice Department referred to the IRS audit of Microsoft as “one of the biggest in the service’s history.” They stated that it examined in what manner technology businesses account for the transfer of products and services across international borders.
Microsoft had questioned the IRS’s “outsourcing” of work to for-profit law firms and claimed that the IRS went to “exceptional efforts to keep its agency data in the shadows.” However, Judge Martinez noted that “Microsoft has failed to submit evidence of ill faith or to otherwise establish that the IRS’s actions were unjustified.”
A Microsoft spokesperson said, “In order to settle the underlying audit, we will continue to work with the IRS in accordance with the court’s ruling.” Microsoft’s legal team at Morgan, Lewis & Bockius, and Baker & McKenzie declined to comment. Representatives from Boies Schiller and Quinn Emanuel waited to respond to messages seeking comment.
As a result, Microsoft has lost multiple legal battles with the IRS over the tax audit data, with the judge ruling that the IRS had a right to keep some information secret and that Microsoft had no legal right to other records relating to the company’s relationships with audit-related law firms. The audit of the tax years 2004 through 2006 is still ongoing, and the results still need to be determined. Microsoft said they will continue cooperating with the IRS to complete the associated audit.
Image by Tawanda Razika from Pixabay