The IRS Says Microsoft Owes More in Back Taxes Than It Invested in OpenAI

Imagine getting hit with an IRS bill like this.

Death and Taxes

The Internal Revenue Service (IRS) says that Microsoft owes around $30 billion in back taxes — which, for those keeping score, is nearly triple what the company invested in OpenAI earlier this year.

In a blog post, Microsoft executive Daniel Goff said that the IRS had sent the company notice that it owes a $28.9 billion tax balance "plus penalties and interest," dating back to a time period between 2004 and 2013.

The tax adjustments, the corporate VP for taxes wrote, are the result of a now-closed IRS audit related to Microsoft's former financial dealings.

"We have changed our corporate structure and practices since the years covered by the audit," Goff wrote in the update, "and as a result, the issues raised by the IRS are relevant to the past but not to our current practices."

Up to $10 billion of that bill, the executive continued, could have been covered under payments Microsoft made following the passage of the Tax Cuts and Jobs Acts in 2017, which reduced corporate income tax rates. As such, it plans to do some wheedling to pay less.

"Microsoft disagrees with these proposed adjustments and will pursue an appeal within the IRS, a process expected to take several years,” the company argued in a Securities and Exchange Commission filing. “We believe we have always followed the IRS’s rules and paid the taxes we owe in the U.S. and around the world.”

Money Moves

In that same SEC filing, the company said that what it's paid already in taxes — $67 billion since 2004, the beginning of the audit period — is "adequate," and the company "will vigorously contest" the adjustments.

It's striking that the tax bill is nearly three times the size of Microsoft's $10 billion OpenAI investment from the beginning of 2023, which was officially announced mere days ahead of massive job cuts.

News of this tax bill also dropped, as The Verge pointed out, just a few days shy of the expected closure date of Microsoft's deal to purchase the video game company Activision Blizzard for a cool $68.7 billion — a merger the Federal Trade Commission has tried to block because, as the agency alleges, it's being done as an attempt to suppress competition for the company's Xbox console line.

For a company like Microsoft, a tax bill ranging in the tens of billions of dollars is par for the course — but it's striking, to say the least, to watch the company vow to battle federal agencies over chump change compared to its various business deals.

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