Google sues IRS over AOL in today's alphabet soup winner

The news that ginormous search giant Google is suing the IRS over a transaction with AOL has tech experts across the country asking: What’s AOL?

Kidding, kidding. No one should be surprised that America Online did work for Google back in the day. After all there was a time when AOL was your online leader. Look it up, junior.

Anyway, Bloomberg reports that Google says the IRS owes it a $83.5 million refund because it denied the Mountain View company’s claim for a $238.6 million deduction.

CNET is on the story, too, as is ZDNet, which has me wondering whether Google talked directly with the IRS or whether the NSA simply gave the tax collector a heads up. They seem to know everything.

And let’s face it; Google (annual sales of $51.4 billion) could use the money.

Again, kidding. After all, this is an issue of fairness. Like most big tech company Google goes to a lot of trouble to avoid paying taxes and it hurts when a fairly simple deduction gets kicked to the side.

“We hope to have it resolved soon,” Googler Niki Fenwick told Bloomberg over the phone.

Meantime, no free food. Kidding.

The brouhaha all started, Bloomberg reported, when AOL exercised a warrant for Google stock valued at $260 million. Google says its cost in the deal was $238,642,985, the difference between the $21,642,985 AOL paid to exercise the warrant and the $260 million value.

The AOL warrant was issued in June 2002, the wire service says, for AOL’s work promoting Google’s search engine among its users.

Remember when Google’s search engine needed to be promoted? Me neither.

AOL also helped Google out with quality control around spam and it helped Google hone its targeting of sponsored links.

Bloomberg didn’t hear from the IRS when it asked for comment, but I’m guessing they’d say something like: We’re right and Google is wrong.

The tax agency did present its side (in between hassling Tea Party organizations) in documents dealing with an AOL petition on the same transaction. Basically the tax man (and woman) say that AOL’s parent at the time, Time Warner, owes tax on the difference between what AOL paid for the Google shares and their market value, which the IRS puts at $234 million.

You can find all the fun in the cases, which are Google Inc. v. U.S. Internal Revenue Service, 014061-13and Time Warner Inc. v. U.S. Internal Revenue Service, 9927-13, both at the U.S. Tax Court in Washington D.C.

I hear it’s a great summer read.

 

Mike Cassidy Mike Cassidy (173 Posts)

I write about the culture of Silicon Valley for the San Jose Mercury News.