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Exxon’s income tax return preparers as not resulting in the
discovery of commercially exploitable energy resources and
therefore as currently deductible business expenses.
During the audits for the years in issue, Exxon’s and
respondent’s representatives generally agreed as to the
applicable law relating to the treatment of G&G costs. They
generally understood that to the extent they could agree that
information provided during the audits to respondent's
representatives established which particular G&G activity led to
the discovery of commercially exploitable energy resources, the
related G&G costs would be disallowed as current expenses and
would be treated as nondeductible capital expenditures.
Upon receipt during the audits from Exxon's representatives
of information regarding particular G&G activity that had
occurred in a year, respondent's representatives would review and
analyze the information, discuss the information with Exxon's
representatives, make inquiries with regard thereto, and
negotiate with Exxon's representatives over whether such
information established that particular G&G activity had or had
not led to the discovery of commercially exploitable energy
resources and whether the related costs should be treated as
ordinary expenses or as capital expenditures.
The following schedule for 1972 through 1978 reflects the
amount of claimed G&G costs that, on audit by respondent, were
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