Microsoft Ex-CEO & Other Executives Sued By IRS Over Taxes

Software developer Microsoft Corporation’s (MSFT - Analyst Report) executives, both former and current, including former chief executive officer ("CEO") Steve Ballmer have been sued by The Internal Revenue Service ("IRS") over the company's past tax practices.

Internal Revenue Service is the U.S. federal agency responsible for collecting taxes and enforcing tax laws. The IRS is currently carrying out an audit of the transfer pricing transactions between Microsoft and its offshore units from 2004 to 2009.

It filed a lawsuit against the executives as it seeks to get more information about the company's transfer pricing transactions to decide if it paid enough in taxes and properly followed tax law. The federal agency wants the executives to cooperate in an investigation into the company’s past tax practices.

Ballmer had been summoned for an interview with IRS personnel regarding the investigation. However, Microsoft refused to comply with the request.

Per the court filings, the IRS has been trying to get access to Microsoft's financial information for quite sometime now. It seeks to gather information about the ways in which the company may have evaded taxes from 2004 to 2006 by transferring goods between its international units.

U.S.-based multinational corporations are obligated to pay U.S. taxes on profits they earn globally. Transfer pricing is the price at which units of a company transfer goods and services between each other. It is a system that is at times manipulated by large companies to reduce their tax burden.

This new episode marks another chapter in IRS and Microsoft's long history of legal issues.

Last month, Microsoft had sued the IRS alleging that the federal tax agency had failed to fulfill its Freedom of Information Act request. Microsoft had made a request for information related to the agency's probe into its tax records under the Freedom of Information Act. But the agency did not respond to the request.

Microsoft wanted the records and exact information about the agreement between the IRS and Quinn Emanuel Urquhart & Sullivan, a business litigation firm that IRS appointed to review the federal income tax returns of the software developer between 2004 and 2009.

Microsoft shares carry a Zacks Rank #3 (Hold). Better-ranked technology stocks to consider at this time include Advent Software, Inc. (ADVS - Snapshot Report), Aspen Technology, Inc. (AZPN - Snapshot Report) and Adobe Systems Inc. (ADBE -Analyst Report). All these stocks hold a Zacks Rank #2 (Buy).

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