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disallowed and that Exxon’s representatives agreed constituted
nondeductible capital expenditures because they led to
commercially exploitable energy resources that produced income
for Exxon over the course of a number of years:
Year Capitalized G&G Costs
1972 $ 2,029,833
1973 4,114,117
1974 9,289,354
1975 8,701,886
1976 9,359,770
1977 16,631,441
1978 21,757,729
Proratables Adjustment
The second of the four major agreed adjustments (referred to
by the parties as the “proratables adjustment”) was made only for
1972 through 1976 and involves the characterization or allocation
of certain of Exxon's administrative expenses between U.S. and
foreign sources. Allocations of Exxon's expenses to foreign
sources decreased Exxon's foreign source income and reduced
foreign tax credits that Exxon could claim against its U.S. tax
liabilities.
Similar to G&G activity, Exxon’s and respondent’s
representatives generally agreed as to the applicable law
relating to the allocation of administrative expenses between
U.S. and foreign sources. Upon receipt during the audits from
Exxon's representatives of information relating to Exxon's
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