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Respondent argues that Exxon’s alternative accrual as
ordinary business expenses in the year wells are drilled of the
$24 million in estimated Prudhoe Bay well-site cleanup costs
(that we determine satisfy the all-events test of the accrual
method of accounting) would distort Exxon’s income. Exxon
responds that under its alternative claim to currently expense
estimated Prudhoe Bay DRR costs its income would not be distorted
for Federal income tax purposes.
Section 446(b) grants respondent broad discretion to
determine whether a particular method of accounting clearly
reflects income and to impose such method of accounting as in
respondent’s opinion does clearly reflect income. Respondent’s
determination is to be respected unless it is found to be an
abuse of discretion. See Thor Power Tool v. Commissioner, 439
U.S. 522, 532 (1979); Ford Motor Co. v. Commissioner, 71 F.3d
209, 212 (6th Cir. 1995), affg. 102 T.C. 87 (1994); Prabel v.
Commissioner, 882 F.2d 820, 823 (3d Cir. 1989), affg. 91 T.C.
1101 (1988).
Herein, under Exxon’s alternative claim, Exxon would fully
write off $24 million in estimated well-site DRR costs
immediately in the years wells in the Prudhoe Bay oil field were
drilled. Such current expense treatment would be unrelated to
the years thereafter in which oil production from the wells
occurred and income from sale of the oil was realized and
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