EXXON DISPUTES $6.5 BILLION U.S. TAX CLAIM

Exxon Corp. has challenged in U.S. tax court a claim by the Internal Revenue Service that it owes $6.5 billion in income taxes for 1980-82. Part of the sum stems from an IRS contention that Exxon, shortly after the 1979 Iranian revolution, charged less than market prices for Saudi Arabian crude and therefore underpaid $1.5 billion in federal taxes. Texaco Inc. also disputes a similar IRS claim for the same amount (OGJ, Aug. 14, 1989, p. 15). Both IRS claims arise from the companies'

Aug. 27, 1990

3 min read

Exxon Corp. has challenged in U.S. tax court a claim by the Internal Revenue Service that it owes $6.5 billion in income taxes for 1980-82.

Part of the sum stems from an IRS contention that Exxon, shortly after the 1979 Iranian revolution, charged less than market prices for Saudi Arabian crude and therefore underpaid $1.5 billion in federal taxes. Texaco Inc. also disputes a similar IRS claim for the same amount (OGJ, Aug. 14, 1989, p. 15).

Both IRS claims arise from the companies' purchases of Saudi crude through the Arabian American Oil Co. partnership.

The other two Aramco partners-Chevron Corp. and Mobil Oil Corp.-have so far not been targets of similar claims.

Exxon also said the IRS refused to allow deductions that it had allowed in the past, due to what the agency claimed was inadequate proof. Regardless of the outcome, however, the company said it has adequate reserves to cover any liabilities.

EXXON RESPONSE

Exxon Chairman Lawrence G. Rawl said the alleged Saudi oil undercharges arose from the company's attempts to keep product prices as low as possible.

As part of its oil purchase contract with Saudi Arabia, Rawl said, Exxon agreed to sell Saudi crude at prices set by that government-prices that were lower than those of most other producers. It was mainly U.S. government pressure that convinced the Saudis to adjust their price structure.

Exxon contends the IRS "completely ignores" that Saudi Arabia's price moderation policy required the company to sell its crude at the government price. If it had breached the mandate by selling it at market rates, the Saudis would have reduced supplies to Exxon, resulting in higher consumer prices.

Referring to the recent price spikes after Iraq's invasion of Kuwait, Rawl said, "The timing of this issue is particularly ironic, as we are currently experiencing the type of disruptive environment that occurred during 1979-82."

PROCEDURAL STEP

The rest of the IRS claim results from a procedural step Exxon said it took earlier this year. It combined its 1980-82 Saudi oil price adjustment claims with a similar tax court case it brought for 1979, which also is pending.

By declining to extend the statute of limitations for a continuing audit, Exxon will be able to have all the tax claims heard at once.

Exxon also said the IRS declined to recognize foreign tax credits even though it has government receipts proving the taxes were paid.

The company contends IRS auditors simply have not finished reviewing all documents pertaining to the case. It believes once this review is complete the case will be resolved in its favor.