Remember “Free Willy?” How about a message for the IRS: “Bill Microsoft?”
That’s right, IRS. Microsoft would like you to please send it a bill for any past taxes.
The Redmond, Wash.-based computer giant is a big, profitable company. It does business all over the world. It has some money as well as a track record of meeting its obligations and following the law. And it wants to square up.
But the IRS won’t do it. It claims Microsoft may have enhanced its bottom line back in 2004-2006 by selling products from its Redmond office to its overseas subsidiaries at less-than-market prices. This meant less profit for the U.S.-based headquarters, where taxes are high, and more for the overseas operations, where they are lower.
It’s against the law to do this, and the IRS says it won’t bill Microsoft until it can determine whether it engaged in this practice and if so to what degree.
The problem is the IRS began auditing the company in 2007, and it claims it still can’t arrive at a figure. This even though Microsoft has allowed eight extensions on the normal legal limit of three years for such audits.
The agency even brought in a $1,000-per-hour Obama-campaign-bundling law firm despite the fact the IRS has hundreds of lawyers and accountants on staff for just such investigations.
Allowing outside counsel to pour through sensitive tax records is highly unusual and may not even have been legal when the agency decided to do it. In fact, it appears the IRS realized this and enacted, without going through the normal public comment process, a temporary rule giving itself permission to do so. Then, it got squirrelly about the new rule and forced Microsoft to go to court to enforce Freedom of Information Act requests for documents on the rule and the law firm.
These high-priced lawyers have done with this case what high-priced lawyers do — turned it into an adversarial proceeding where fault by the “other side” is assumed, Microsoft people are interrogated in criminal-style depositions and the process is handled like litigation. Some who have been deposed say the outside lawyers don’t even have the requisite expertise to participate in such cases.
But that’s not what IRS audits are supposed to be. They are supposed to involve the taxpayers and the agency working together to determine income and tax burden. The IRS and its hired guns have turned it into the Battle of Verdun, draining Microsoft, a major American job creator, of resources but adding not a dime to the federal treasury.
Microsoft says it has identified a perfectly legal means to lower its tax bill and avoid the United States’ highest-in-the-developed-world corporate tax — and that explains why the IRS won’t let go. The firm says it has granted multiple extensions, made its executives and bean counters fully available for depositions and interviews and gone above and beyond to cooperate.
If Microsoft’s business strategies are a problem for the IRS, it is up to Congress to change the tax law. But as long as those strategies are legal, no one should question Microsoft for doing what it can to limit its tax obligation.
What should be questioned are the tactics of the IRS. Why did it need to change the rule if it was always OK to hire outside counsel? For that matter, why is outside counsel rummaging through the tax records of a major law-abiding U.S. corporation when the IRS has an army of lawyers and accountants for just that purpose? Why not reveal the rule change and the hiring unprompted?
And, of course, the big one: How has this gone on for eight years with no end in sight? Yes, some of these laws are complicated, but there is reason Congress gives the IRS three years — not eight and certainly not carte blanche to go on indefinitely.
Regardless what one may think of Microsoft or what its tax bill actually should be, the IRS doesn’t look good on this. Combined with the Lois Lerner scandal, the compromised data scandal and all the other examples of IRS mismanagement in the news in recent years, it looks like the agency’s typical harassment, incompetence and failure.
The victim here may be Microsoft, but anyone who runs even a remotely sophisticated business should be concerned. Microsoft has the means to withstand such scrutiny, but most American companies could not survive such an ordeal.
If the IRS has something on Microsoft, by all means bring it forward. But if it doesn’t, it needs to close the books on this near-decade of harassment and send Microsoft a bill for its taxes.
• Brian McNicoll is a conservative columnist and freelance writer based in Alexandria, Va. He is a former senior writer for the Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.
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