In an ongoing transfer pricing battle between Microsoft and the IRS related to Microsofts’ use of a IP subsidiary in Puerto Rico to shift income and reduce taxes, the District Court of Washington has now ordered Microsoft to provide a number of documents as requested by the IRS. In a prior decision from November 2015 the District Court ruled, that the IRS’ use of an external representative was not in conflict with US regulations. Microsoft argued that the IRS’ use of an outside law firm, Quinn Emanuel Urquhart & Sullivan, to assist in the audit was an improper delegation of its authority to examine taxpayer books. The Court ruled that the government had a legitimate purpose in continuing to pursue the audit, and that the use of Quinn Emanuel was not a breach of IRS authority that would invalidate the summonses. “The court’s role in this matter is not to pass judgment on the IRS’ contracting practices, but to enforce or not enforce the summonses,” Martinez wrote. The law allows the IRS some flexibility in its use of outside contractors, he said, and Microsoft’s characterization of the role of Quinn Emanuel “greatly exceeds what is evident in the record.” ...

The IRS filed a summons to get BMC’s computer source code as part of a transfer pricing audit, but in this decision, the court ruled in favor of BMC ...