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Tax Software CevronTexaco, the world's fourth-largest oil company, evaded $3.25 billion in federal and state taxes from 1970 to 2000 through a complex petroleum pricing scheme involving a project in Indonesia, according to a new research paper by two accounting professors.

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Software Tax Accusations of tax evasion were first raised against Chevron in the early 1990's by the district office of the Internal Revenue Service in San Francisco, where ChevronTexaco is based. The company paid $675 million to settle the dispute, far less than the $1 billion it had set aside as a reserve in case it lost the case, which covered the years 1979 through 1987.

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Every Landlord Tax Deduction Later the I.R.S. district office continued to investigate, but the company refused to provide requested documents, touching off a brief fight in Federal District Court in San Francisco. Hundreds of documents about the Indonesia oil deal ultimately entered the public record.

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Tax Help The case was closed after officials at the I.R.S. headquarters in Washington overruled the district office.

Recently, the IRS has been relying more on informant information, reported Cryan, particularly as a result of the IRS disclosure efforts over the past year regarding abusive tax shelters. The disclosures required under current tax law, for instance, have given the IRS lists of promoters and tax shelter participants, all of which have proven fertile ground for gathering information about tax shelter activities. In addition, income taxpayers, card schemes through the Offshore Voluntary Compliance Initiative (OVCI).

Help Tax The authors of the research paper reviewed the documents that became public and said that the I.R.S. had ground to reopen the case and should do so.

Ernst Ernst Guide Guide Tax "What we believe is that the evidence is there that fraud exists," said one of the authors, Jeffrey Gramlich, a visiting professor at the University of Michigan Business School and professor at the University of Hawaii. "The national office of the I.R.S. settled for far less something like a quarter on the dollar than what is really owed."

Tax Return After reviewing the research paper, ChevronTexaco said last night the allegations were a rehash of old issues that had been settled with the I.R.S.

Return Tax "All of the issues they're raising have been thoroughly investigated, fully examined and resolved and closed by the I.R.S.," said Fred Gorell, a spokesman for ChevronTexaco. "There's absolutely nothing new here. All of those issues they've raised are without merit."

Guide Guide Master Master Tax An I.R.S. spokesman said that federal law prevented the agency from commenting.

Tax Preparation Chevron and Texaco, before they merged in October 2001, each owned 50 percent of a joint venture called Caltex. That company has since been absorbed into the merged ChevronTexaco. Caltex produces crude oil in a project with the Indonesian state oil company, Pertamina.

Preparation Tax The research paper focuses mostly on what it says is Chevron's reliance on its business with Caltex to evade United States taxes, though the authors contend Texaco was complicit as well.

Employer Tax Guide Mr. Gramlich and his co-author, James E. Wheeler, professor emeritus of accounting at the University of Michigan Business School, said that Chevron reduced its tax liabilities in the United States by buying oil from Caltex at inflated prices.

Tax Services According to a 1984 internal Chevron document that was released to the I.R.S., Chevron agreed to buy oil from Caltex at prices, set by the government of Indonesia, that were on average $4.55 a barrel higher than the prevailing market price. Spending more for the Caltex oil permitted Chevron to overstate deductions for its costs on its United States income tax returns, the authors said.

Services Tax The overpriced oil generated greater income for Caltex. But it had to pay a 56 percent income tax on it to Indonesia, far higher than the United States corporate tax rate. Because the United States gives companies a dollar-for-dollar credit for taxes paid to foreign governments, every dollar paid to the Indonesian government meant less money to the United States.

Master Tax Guide At first glance that would not seem to benefit Chevron because what it saved in American taxes it paid in Indonesian taxes.

Tax Attorney As Professor Wheeler put it: "What sense does it make to move income out of the U.S. to Indonesia?"

Attorney Tax Plenty, according to the report. The reason was that the Indonesian government compensated Caltex for the overpriced oil and the extra taxes by giving it free additional oil.

Guide Law Tax Because Caltex had to pay taxes on that oil, however, the Indonesian government gave it enough to cover the taxes.

Tax Accountant For example, if Indonesia wanted to give Caltex an additional $100 worth of oil after taxes, it had to give it $227 in oil. That amount, taxed at 56 percent, left Caltex with $100. That $100 was never taxed in the United States, the authors of the report say. Moreover, Chevron and Texaco got a United States tax credit of $127 the amount of the Indonesian tax.

Accountant Tax Mr. Gramlich contended that the oil companies "like paying taxes in Indonesia, because they get their tax money back twice."

Circular Employer Tax Guide "They pay taxes in Indonesia and get it back in oil, and they get a foreign tax credit from the U.S. government."

Income Tax In internal documents, Chevron maintained that the additional oil was a reward for opening new markets for Indonesian petroleum.

Us Master Tax Guide One independent tax expert who reviewed the paper said he remained unconvinced by its arguments.

Property Tax "These guys are ranting on," said Charles I. Kingson, a tax lawyer with Ernst & Young. "What is the big advantage in paying more Indonesian tax than you have to, just to get a credit against U.S. taxes?"

Irs Tax Form Michael J. McIntyre, a Wayne State University Law School professor of international tax law, said the study built "a very strong case."

Form Irs Tax The Chevron case has been the subject of commentaries in several tax journals because its handling generated a fight within the agency and the rationale on which the I.R.S. national office effectively quashed the case seemed, to some of these writers, to fall outside of established I.R.S. policy.

Tax Guide For Trader The records from the court case are online at www2.Hawaii.edu/~gramlich/caltex/home.html.

Online Tax Neela Banerjee and David Cay Johnson
New York Times - 9/13/2002

Topic: Petroleum Industry

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