Microsoft Corporation (MSFT) Files Lawsuit Versus IRS Over Tax Probe Details

Microsoft Corporation (NASDAQ:MSFT) has filed a lawsuit against the Internal Revenue Service in connection with the software corporation’s request for the U.S. revenue agency to release details of its contract with a law firm tasked with a Microsoft tax audit. A report by Reuters cites Microsoft as asserting that IRS has an obligation to be transparent under the Freedom of Information Act.

The case, filed in a federal court in Washington, complains that the IRS have withheld information which Microsoft Corporation (NASDAQ:MSFT) says it has requested from the agency on September 24. Specifically, the software company is asking IRS to give details of the contract it has inked with law firm Quinn Emanuel Urquhart & Sullivan LLP. The said law firm has been tasked by the IRS with scrutinizing Microsoft’s federal income tax returns covering the period of 2004 to 2009. According to Microsoft Corporation (NASDAQ:MSFT), the IRS have twice asked for an extension of the 20 days allowed by law for it to respond to requests for information under the FOIA. The lack of response from the said agency to date has prompted the company to file the suit.

The IRS have been scrutinizing multinational companies’ prices for goods and services bought and sold between it and any of its international subsidiaries. Generally, transfer pricing for goods and services undergoing movement from a company’s international unit to another reduces its tax obligations. The IRS is starting to look after technology companies such as Microsoft Corporation (NASDAQ:MSFT) to determine their transfer pricing accountability. Prior to putting Microsoft under its scrutiny this year, the IRS has fined Amazon.com, Inc. (NASDAQ:AMZN) last year an amount of $234 million covering unpaid taxes due to transfer pricing. Transfer pricing tax laws are intended to discourage companies from selling its patents at steep discounts to their subsidiaries located in areas that have lower tax rates, considering the principle of fair market value.