IRS Investigating Google over Foreign Subsidiaries

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If you think being audited by the IRS is scary, imagine how Google is feeling. According to Bloomberg, the company is undergoing a private audit over its offshore subsidiaries and their use in avoiding federal income taxes.

The agency has requested information from the company about offshore deals following three large acquisitions, including its 2006 purchase of YouTube, according to an anonymous source, who also describes the IRS as acting with “more than typical scrutiny” in the current investigation.

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The three deals in question are the $1.65 billion purchase of YouTube in 2006, the $625 million purchase of Postini in 2007, and $3.2 billion purchase of DoubleClick Inc. in 2008. Of concern is the possibility that Google’s foreign subsidiaries underpaid for foreign rights to software following these deals, which has the net effect of helping Google avoid U.S. income tax.

America isn’t the only country interested in Google’s ability to cut around $1 billion from its U.S. tax bill annually by using holdings in Bermuda, Ireland and the Netherlands; French tax bodies have been working on the same matter since December of last year, although no findings have been released yet.

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Graeme McMillan is a reporter at TIME. Find him on Twitter at @Graemem or on Facebook at Facebook/Graeme.McMillan. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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