IRS Seeks Taxes of Up to $800 Million From Mobil

Mobil Oil Corp. Chief Executive Allen E. Murray said Friday that the Internal Revenue Service has asked for taxes on an extra $2 billion in income from transactions Mobil made more than a decade ago, a move he called “ludicrous.”

A leading oil industry analyst said the taxes could amount to as much as $800 million.

The IRS request is the latest in a dragged-out, complex dispute between the IRS and the four oil companies that once owned the Arabian American Oil Co., before their holdings were nationalized as the Saudi Arabian Oil Co., or Saudi Aramco.

The tax battle centers on what’s known as the “Aramco Advantage.” In an effort to contain oil prices during the Iranian revolution in 1979, Saudi Arabia asked the companies--Mobil, Exxon Corp., Chevron Corp., and Texaco-- to buy its crude at as much as $6 below the then-market price of $34 a barrel, and to pass that savings along to their affiliates in different countries.

It was a strategy that “the U.S. government firmly endorsed,” Murray said. The lower resulting price became know as the Aramco Advantage.

Now, says Mobil, the IRS has developed a theory that “reconstructs’ history.” According to that theory, Mobil should have charged its affiliates at the world market rate; by charging less, Mobil also paid less U.S. tax than it would have owed.

Gail Ellis, a spokeswoman for the IRS, declined comment on the cases, citing IRS pivacy rules.