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The rules of financial accounting and a company’s financial
treatment of such costs, however, whether correct or incorrect
thereunder are not controlling for Federal income tax purposes.
See Thor Power Tool Co. v. Commissioner, 439 U.S. 522, 540
(1979). We also note that Exxon, for financial reporting
purposes, did not on its financial balance sheets (as
distinguished from its financial income statements) accrue any
fixed liability relating to estimated DRR obligations at Prudhoe
Bay.
Exxon argues strenuously that respondent’s position, under
which no tax accrual would be allowed for estimated future
Prudhoe Bay DRR costs, produces a fundamental and gross mismatch
of Exxon’s income and expenses relating to Prudhoe Bay oil
recovery. Under the matching principle of Federal income tax
accounting, however, only those obligations are to be recognized
that are properly accruable (i.e., that satisfy the all-events
test). To allow estimated costs of obligations that do not
satisfy the all-events accrual test (such as the majority of the
estimated DRR costs involved herein) to be accrued and to offset
current income is not part of the matching principle.
Further, Alaska’s general policy under its constitution for
management of Alaska lands (to permit development while at the
same time insisting that the environment be preserved or, if
necessary, restored to the fullest reasonable extent) does not
establish any specific oil company DRR obligations with regard to
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