The $100m (£63.6m) in cuts will see hundreds of jobs lost at AOL's Northern Virginia headquarters. The cuts will come across all divisions as the internet service struggles to make up for the shortfall in lost advertising revenues.
According to a report in the Washington Post, AOL vice-chairman Joseph Ripp, who is overseeing the cuts, told managers that no division of internet service provider will be spared from the review, which would identify the cuts.
Decisions about where to make the cuts will be made over the next few months, sources said. America Online employs more than 5,500 people in Northern Virginia. Employees in New York, California and Ohio may also lose their jobs, the report said.
After an internal review this autumn, AOL Time Warner reduced previously reported revenue by $190m and said it can not predict what additional charges may result from investigations by the Justice Department and the Securities & Exchange Commission.
AOL is the US's biggest online service with 35m subscribers. As well as falling advertising revenue, AOL has faced intense competition from rival Microsoft and has had to drop its subscription prices.
When AOL announced its predictions of advertising revenues earlier this week it said that subscription revenue would deliver "solid growth", offsetting advertising and commerce declines.
The job cuts come amid a tough period for the company, which faces an investigation over the way that advertising revenues have been booked at the online service.
In October, AOL Time Warner said it had uncovered $200m of advertising deals falsely booked as income as a result of "inappropriate" accounting.
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