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The agreed adjustments do not include significant other
adjustments that were raised by respondent on audit and that were
protested by Exxon or that were raised by Exxon in claims for
refund and that are still pending in litigation.
A brief description of each of the four major agreed
adjustments is set forth below.
G&G Costs
The first of the four major agreed adjustments relates to
costs of geological and geophysical (G&G) activity and the
deductibility of such costs as current business expenses or the
nondeductibility thereof as capital expenditures. G&G activity
involves work of geologists and geophysicists in obtaining and
analyzing geographical seismic data for purposes of identifying
energy-related natural resources.
Generally, at the time Exxon’s consolidated corporation
income tax returns were filed, information was not yet available
to Exxon’s geologists and geophysicists (and therefore it was not
available to those individuals preparing and filing Exxon’s
income tax returns) as to whether particular G&G costs incurred
in a year resulted in the discovery of commercially exploitable
energy resources. However, on Exxon’s consolidated corporation
income tax returns as originally filed for each year, all of
Exxon’s G&G costs that were incurred in a year were treated by
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