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relating to estimated future Prudhoe Bay DRR costs, which was
reflected on Exxon’s income statements as an item of depreciation
and charged to earnings, was credited to a “reserve” liability
account.
During the years in issue, for financial income statement
and balance sheet reporting purposes, Exxon’s practice for the
financial reporting of estimated future DRR costs was the same as
that followed by a majority of oil and gas companies.
Set forth in the section below (infra p. 30), is a schedule
setting forth, among other things, the amount of estimated future
PBU DRR costs that Exxon, in its financial income statements for
each year, accrued as a depreciation expense and added to a
liability reserve account.
Exxon’s Federal Corporation Income Tax Returns and
Now Proposed Tax Treatment of Estimated DRR Costs
In preparing and filing its Federal corporation income tax
returns for the years in issue, Exxon used the accrual method of
accounting, and Exxon has consistently used the all-events test
as the standard for determining when its liabilities accrue under
the accrual method of accounting.
On its consolidated Federal corporation income tax returns
for the years in issue, Exxon accrued costs relating to its
worldwide DRR obligations on the accrual method of accounting as
its tax return preparers then understood the application to DRR
costs of the all-events test of the accrual method of accounting.
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