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That is, DRR costs, for Federal income tax return purposes, were
accrued only when the related DRR work was performed and then as
current business expenses. As explained and as reflected in Rev.
Rul. 80-182, 1980-2 C.B. 167, this was consistent with
respondent’s interpretation of how the all-events test of the
accrual method of accounting applied to DRR costs.
Set forth below for each of the years 1977 through 1982 is a
schedule that reflects the amount of estimated Prudhoe Bay DRR
costs indicated: (1) On Exxon’s financial balance sheet
statements (as explained, estimated DRR costs were accrued on
Exxon’s financial balance sheet statements not as a fixed
liability cost but only in a footnote as a reserved liability);
(2) on Exxon’s financial income statements (as explained,
estimated future DRR costs were accrued on Exxon’s income
statements as a depreciation expense based on units of oil
production that occurred in each year); (3) on Exxon’s Federal
income tax returns, as filed with respondent (as explained, on
Exxon’s income tax returns DRR costs were not accrued until DRR
work was performed and then as current business expenses); and
(4) as now claimed by Exxon for Federal income tax purposes,
namely, in the year Prudhoe Bay oil wells and the related
equipment, facilities, and buildings were constructed, total
estimated future Prudhoe Bay DRR costs would be capitalized and
for each year related accelerated depreciation, investment tax
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