MSFT · 10-Q · 2026Q1 · Full report

Uncertain Tax Positions

MICROSOFT CORP · 2026-04-29 · Importance 71 · Surprise 60 · In source text

Microsoft is subject to substantial U.S. tax examinations and received Notices of Proposed Adjustment (NOPAs) from the IRS regarding tax years 2004–2013 seeking an additional $28.9 billion plus penalties and interest; it also remains under audit for tax years 2014–2017. Management states it believes its allowances for income tax contingencies are adequate but disagrees with the proposed adjustments and will contest them through administrative appeals and, if necessary, litigation. The company expects no final resolution within the next 12 months and does not anticipate a significant change to its income tax contingencies in that period. The disclosures note that changes in the mix of U.S. and foreign earnings affected the effective tax rate and that Ireland remains subject to examination for tax years 2021 and thereafter.

Key facts

• We remain under audit by the IRS for tax years 2014 to 2017; with respect to tax years 2004 to 2013, on September 26, 2023 we received Notices of Proposed Adjustment in which the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. source
• Our effective tax rate was 19% and 18% for the three months ended March 31, 2026 and 2025, respectively, and 20% and 18% for the nine months ended March 31, 2026 and 2025, respectively. source
• We do not expect a final resolution of the IRS NOPAs for tax years 2004 to 2013 in the next 12 months and, based on current information, do not anticipate a significant increase or decrease to our income tax contingencies for these issues within the next 12 months. source
• We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. source
• The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. source
• Accounting literature provides guidance on derecognition of income tax assets and liabilities, classification of deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures. source

Impact estimates