- 48 -
equipment and to claim accelerated depreciation, ITC, and IDC
relating thereto. We find no abuse in respondent’s refusal to
authorize this change in the accrual of Exxon’s DRR costs.
The question remains as to whether Exxon should be allowed
its alternative claim to accrue the estimated $24 million in
well-site DRR costs (that we have concluded satisfy the all-
events test) as current ordinary and necessary business expenses
in the year in which oil wells are drilled. Treating such DRR
costs as ordinary business expenses would be consistent with
Exxon’s tax return treatment under which such expenses were so
accrued--albeit in the year in which the DRR work was performed.
The proposed modification to Exxon’s accrual as ordinary
business expenses of estimated well-site DRR costs (from the
year in which the related DRR work is performed to the year in
which wells are drilled and the DRR obligation first becomes
fixed) arguably, as Exxon asserts, would constitute a mere
“correction” in the application of the all-events test to such
costs (namely, the costs would be regarded as being fixed and
reasonably estimable--and therefore as satisfying the all-events
test--in the years the wells are drilled, rather than in later
years in which the DRR work is performed).
Section 1.446-1(e)(2)(ii)(b), Income Tax Regs., provides,
among other things, that a mere technical “correction” in the
application of a taxpayer's existing method of accounting for the
same or similar items may be made without obtaining respondent’s
Page: Previous 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 NextLast modified: May 25, 2011