The Internal Revenue Service is petitioning a federal court to compel a who’s who of former Microsoft executives — including longtime CEO Steve Ballmer and former Windows chief Jim Allchin — to testify as part of an IRS audit of transactions between Microsoft and its international subsidiaries.
Petitions filed by the IRS in U.S. District Court in Seattle say the executives have not complied with summonses seeking their testimony in the audit. According to one court filing, the IRS is examining how Microsoft accounted for financial transactions with its subsidiaries in Puerto Rico and Bermuda.
“Non-arm’s length prices can be used to shift income, and thus the incidence of tax, to tax-favored jurisdictions,” the agency explains in one of its filings, noting that the value the company placed on the transactions had “billions of dollars of impact on Microsoft’s taxable income in 2004, 2005, and 2006.”
The Seattle Times reported on the petitions overnight, and GeekWire confirmed the details in court filings.
In a statement emailed to GeekWire, the company said, “We are reviewing the petition and related filings, but do not comment on pending audits. As a global business, Microsoft adheres carefully to the laws and regulations of every country in which we operate.”
In addition to Ballmer and Allchin — who led the development of Windows XP and Windows Vista — the IRS is seeking to interview former Microsoft executives including:
- Bill Veghte, a former Windows executive who now leads HP’s enterprise group;
- former Office division leader Jeff Raikes, who stepped down as Bill & Melinda Gates Foundation CEO last year;
- former research and strategy chief Craig Mundie;
- Jon Roskill, the former vice president of Microsoft’s Worldwide Partner Group, now the CEO of startup Acumatica;
- and former marketing chief Mich Matthews; among others.
According to one filing, the IRS issued a summons to Ballmer at his Seattle home demanding that he testify on Dec. 8, but he failed to appear. Microsoft told the IRS in advance that it was declining to make Ballmer and other former executives available, citing a disagreement with the IRS over the procedures for the interviews.
This is part of a broader dispute between Microsoft and the IRS that also includes a suit by Microsoft against the agency over the company’s Freedom of Information Act request for details on an IRS contract with a law firm retained in the case.