Bloomberg reports that Google has sued the IRS for an $83.5 million refund. The company said it was improperly denied a deduction for a 2004 stock transaction with America Online. Google hinted to the current lawsuit back in late January in an SEC filing, saying that it had "one issue which we plan to litigate in court" regarding the IRS.
"Google’s actual cost for issuing the AOL warrant was $238,667,835, which equaled the spread between the $21,642,985 it received from AOL to exercise the AOL warrant and $260 million in value [of the stock]," Google said in a formal complaint.
The tax refund Google claims the IRS owes is a mere chump of change in the bigger picture. Google reportedly generates around $83.5 million USD every 20 hours, a number based on the company's Q2 sales a year ago. Still, money owed is money owed, even if it's a dollar – the IRS would definitely be knocking on Google's door if it were the other way around.
According to Google's complaint in U.S. Tax Court, the IRS made an error by disallowing a $238.6 million deduction claimed for "the difference between the price AOL paid to exercise a warrant for Google stock, and the value of the shares." Google reportedly issued the warrant for its "series D preferred stock" back in June 2002 as a recognition of AOL's efforts to provide multiple services to Google including "quality control" and sponsored links enhancement.
Bloomberg goes on to report that AOL exercised the warrant in May 2004, but that was 3 1/2 months before Google priced its IPO, and its common stock began trading on Nasdaq. But it seems that Time Warner Inc., AOL's parent company, was affected by the same IRS problem Google is currently suing over, only the IRS claims that Time Warner owes the government $4.6 million USD. Time Warner filed its complaint on May 6.
And the tax drama goes on… what a mess. The full report can be read over on Bloomberg here. The case is 014061-13 in the U.S. Tax Court in Washington, D.C.