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On Wednesday, Microsoft revealed in a Securities and Exchange Commission filing and blog post that the Internal Revenue Service says the company owes the US Treasury $28.9 billion in back taxes, plus penalties and interest, reports the Associated Press. The claim comes as a result of a lengthy IRS audit that examined how Microsoft distributed its profits across different countries from 2004 to 2013. Microsoft disagrees with the IRS's claim and intends to appeal the decision.
According to the AP, the ongoing IRS probe began in 2007 and is described as "one of the largest in the Service's history" in court documents released last year. Recently, Microsoft received notification that the audit phase has concluded, triggering the next steps for settling the dispute. At the core of the IRS investigation is the practice known as "transfer pricing," which some critics argue allows companies to report lower profits in countries with higher taxes and vice versa, minimizing their overall tax obligations.
Microsoft maintains that it has complied with IRS rules all along and will proceed to appeal the agency's decision—a process expected to last for years. Here's how the company described the episode in Section 8.01 of its SEC filing:
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