Quoting unnamed sources, the newspaper said that rather than imposing fines, the SEC is likely to bring civil charges that Microsoft, based in suburban Redmond, failed to keep accurate books and records.
A common resolution in such cases is for a company to promise to follow SEC rules in the future.
Agreement could be weeks away and the terms could change, the sources said.
SEC probes are conducted under tight confidentiality and the agency's officials rarely comment on them.
SEC spokeswoman Christi Harlan would neither confirm nor deny the Journal report Thursday.
The issue has been hanging for more than two years, and the talks may reflect a recent SEC attempt to crack down on "cookie jar" accounting practices that fail to provide an accurate picture of earnings and revenues.
Microsoft is accused of smoothing its results by setting aside artificially large reserves to reduce revenues with the idea of reversing that procedure to record the revenues in less profitable future periods.
The sources told the newspaper, however, that investigators have been unable to determine clearly whether Microsoft ever did reverse the process.
More than a year ago Microsoft received a so-called Wells notice from the SEC, a warning that the company could face civil charges, the newspaper reported.
Chairman Bill Gates and other top Microsoft executives have been deposed, and settlement negotiations began around the end of 2001, the sources said.
On June 30, 1999, Microsoft chief financial officer Greg Maffei revealed that the SEC had been investigating for several months in a matter regarding "reserves and reserve policies." He said Microsoft was cooperating fully with the probe.
"We take our financial reporting responsibilities very seriously, and we work hard to comply with every aspect of the company's reporting obligations," a Microsoft spokesman told The Journal.
The spokesman, who was not named in the report, would not comment further.
Accounting rules generally allow businesses to set aside funds for potential expenses such as returned products, excessive inventory and bad debts. A higher estimate of those expenses reduces the amount of reported earnings.
The investigation apparently stemmed from a lawsuit filed in 1997 by Charles Pancerzewski, a former Microsoft internal auditor who said he was wrongly fired for warning that Microsoft's accounting reserve practices could violate SEC rules
The case was settled and the record sealed after a federal judge cleared the way for the case to go to trial.