Exxon, Texaco Court Win Saves Them Billions in Taxes

Exxon and Texaco, two of the world’s biggest oil companies, won a U.S. Tax Court case Wednesday that bars the Internal Revenue Service from claiming billions of dollars in back taxes from them.

Exxon said the claim involved $2 billion in additional taxes for 1979-1981. Texaco said the IRS wanted additional taxes of $863 million for the three years, with interest on the claim of $2.5 billion as of last Dec. 31.

It wasn’t immediately clear whether the IRS would continue to press its position in the so-called “Aramco Advantage” case, which dates from a three-year period during the 1970s energy crisis.

Exxon, Texaco, Mobil Corp. and Chevron Corp. were then members of the Arabian-American Oil Co.--Aramco--which bought oil from Saudi Arabia, the leading producer of oil.

After the overthrow of the shah of Iran, Saudi Arabia sold oil to the big companies at prices below world market levels in an effort to moderate supply disruptions and major price increases.

The IRS contended that the four American companies attempted to evade taxes by reselling to subsidiaries at below-market prices.

In a statement released Wednesday night about the court decision, Texaco said it meant the IRS could not tax Texaco as if the company had sold the Saudi crude oil at higher prices than those it charged.

The court found that Texaco had observed a Saudi directive mandating prices, the White Plains, N.Y.-based company said.

William O’Brien, Exxon vice president and general tax counsel of the Irving, Texas-based company, said Exxon also complied with the Saudi directive to sell its crude oil at prices it set lower than prices charged by other countries.

Should Exxon have ignored that directive, it “would have threatened our access to Saudi crude oil supplies and generally resulted in consumers paying higher prices,” he said.