Exxon Mobil Wins A Substantial Refund Case on Interest on Production Payments (11/5/24)

I write on Exxon Mobil Corp. v. United States (N.D. TX No. 3:22-CV-0515-N Findings of Fact and Conclusions of Law 10/31/24), CL here & GS here [to come]. For those interested, the CL docket entries are here.  Exxon Mobil (sometimes referred to as ExxonMobil in the opinion) prevails in this tax refund suit. The Court held that certain payments by an Exxon Mobil affiliate on its arrangement with an entity of the State of Qatar were interest payments by treating a production payment as a debt under § 636(a). For details of the parties’ arguments, see the Pretrial Order on CL, here. (Note that per CL docket entries, the briefs were generally sealed for some reason (I did not bother to check on the reason).)

I won’t get into the merits of the interest issue decided. On those merits, I am reminded of Justice Frankfurter’s complaint about Supreme Court review of the Tax Court’s oil and gas cases that those cases make distinctions “which hardly can be held in the mind longer than it takes to state them.” Burton-Sutton Oil Co. v. Commissioner, 328 US 25, 38 (1946) (dissenting).)

Procedural issues are:

1. Expert Witnesses. The Court says in the second paragraph (Slip op. 1-2):

          As a general matter the Court found ExxonMobil’s witnesses – both lay and expert – to be credible and helpful. The Court found Defendant United States of America’s (“United States”) expert to be credible but not helpful. That is to say, the Court believes Dr. Wright truthfully testified as to her opinions and that she is well-qualified to offer those opinions. The problem is the subject matter of her opinions – she was asked to offer opinions regarding oil and gas accounting from a business perspective, rather than opining [*2] on the correct tax treatment or the economic reality of the transaction. For that reason, the Court discounts her testimony.

This surprises me because I thought experts do not testify as to the law which is the “the correct tax treatment” In that same vein, I would have thought that the “economic reality of the transaction” is a legal conclusion or mixed fact-legal conclusion that may not be appropriate for the expert to testify directly. But, what do I know? And, in any event, is the explanation a persuasive reason to ignore the expert? The Court then says (Slip Op. 2) immediately after slapping the Government expert:

Based on the evidence at trial, the Court makes the following findings of fact and conclusions of law. Because the Court generally agrees with ExxonMobil’s position, these are largely – though not entirely – drawn from ExxonMobil’s proposed findings and conclusions.

2. Why did Exxon Mobil choose to litigate in the district court? Do you think that the Tax Court or the Court of Federal Claims would have been a less favorable forum?

3. Why did Exxon Mobil not demand a jury? And the follow-through, why did the Government not demand a jury?

I previously blogged on an earlier Exxon Mobil failed attempt for refund on a perhaps related issue. Exxon Strikes Out on Its Tax Refund Claims But Dodges the § 6676(a) Penalty Bullet (Federal Tax Procedure 8/4/22; 8/8/24), here. Caveat, I say the earlier suit was a somewhat related issue but I have not dug any further into it.