Updated from 2:30 p.m. EST

Intel

(INTC) - Get Report

revealed in its annual report Monday morning that it's being audited by the Internal Revenue Service. In a 10-K filing with the

Securities and Exchange Commission

, Intel said that in January 2004 the IRS began investigating the company's tax returns for the years 2001 and 2002.

A spokesperson for Intel called the audit "routine in nature" and said Intel has been audited every year since its founding 35 years ago.

In Monday trading Intel closed down $1, or 3.3%, to $29. Year to date, the stock is down 9.5%.

In August 2003, Intel revealed that after an audit of its tax returns for 1999 and 2000, the IRS had proposed adjustments that could cause Intel's tax liability to increase by about $600 million, plus interest. Intel has disputed the changes.

Intel said Monday it doesn't think any of the audits will materially hurt its financial position.

Also, Intel revealed that last year's stock option expenses, determined under the fair value method, cost $991 million, out of net income of $5.6 billion. Accounting for options would have reduced earnings per share from 85 cents to 71 cents.

Elsewhere in the filing, Intel said it expects its gross margin to be 62% in 2004, reiterating a forecast it made when

releasing its fourth-quarter earnings in January. The estimate is up from gross margin of 57% in 2003.

The forecast reflects growth in its main architecture business and "the impact of spreading our fixed costs over a greater number of units." Profitability should also be enhanced by use of Intel's 90-nanometer microprocessor technology and 300-millimeter semiconductor wafers.

Intel expects capital spending to be between $3.6 billion and $4 billion in 2004, compared with $3.7 billion in 2003. Most of the new spending will be on plants using the 300-millimeter wafers. The company expects more than half of the capital spending to go toward fabrication manufacturing equipment, and more than a quarter to land and construction

Intel expects its 2004 depreciation expense to be $4.6 billion, down from $4.7 billion in 2003.