Exxon Strikes Out on Its Tax Refund Claims But Dodges the § 6676(a) Penalty Bullet (8/4/22; 8/8/24)

In Exxon Mobil Corp. v. United States, 43 F.4th 424 (5th Cir. 8/3/22), CA5 here and GS here, Exxon Mobil (“Exxon”) filed a mammoth claim for refund claiming that it had misreported two separate tax matters on its original income tax return.  The first item it misreported (paying more tax than it claims was due) was worth “worth a billion dollars” related to the proper tax treatment of payments arising from an oil and gas transaction.  Related to this first claim, the IRS imposed a § 6676(a) 20% penalty worth about $200 million.  The second item, called by the Court a “purported blunder” (not a good sign to use the purported adjective) “this one worth $300 million,” about how to treat the renewable fuel tax credit.

I have two gut level comments.  

First, Exxon has and has had for a number of years one of the best tax departments ever and certainly the funding to buy the best outside legal talent available.  (General Electric used to claim that it tax department was the best law firm ever, but as those who have been watching, General Electric’s supposed inside best tax firm got them into bullshit tax shelters, so much for the best claim.)  So, why would these supposed legal giants overreport Exxon’s tax liability?  The answer as this new case determines, Exxon did not overreport the tax liability.  

Second, so what is this, shall I call it bullshit, about an amended return claiming that their legal geniuses overreported Exxon’s tax liability by $1.3 billion.  (I am sure those legal geniuses had a sigh of relief over this outcome.) And while many might claim that $1.3 billion for Exxon is pocket change, still that is the stuff that tax department promotions and pay is based on (and for outside counsel litigating aggressive positions, contingency fees).

The Unspotted Issue in an Audit; Ethics and Crimes (7/24/20; 8/2/20)

In an ABA Tax Section Court Procedure Virtual meeting on Wednesday, there was a one-hour discussion of ethical issues in handling a matter in the Tax Court.  The participants in the discussion were:

• Judge L. Paige Marvel, United States Tax Court, Washington, D.C.
• Elizabeth G. Chirich, Chief, Branch 1, Procedure & Administration, IRS Office of Chief Counsel, Washington, D.C.
• Guinevere Moore, Moore Tax Law Group, LLC, Chicago, IL
• Kandyce Korotky, Covington & Burling, Washington, D.C. (Moderator)
• Mitchell I. Horowitz, Buchanan Ingersoll & Rooney P.C., Tampa, FL

The discussion was excellent.  I highly recommend those who can access the recording of the event on the ABA web site to do so.  (I would provide a link but have not yet located the link, perhaps because the recording has not yet been put up.)

During the discussion I posted two questions which, apparently because of time, the participants did not respond to.  I offer the questions and some comment here.  The questions were:

1.        Question : What if the IRS sets up only one issue in the notice of deficiency and the IRS never spotted a big issue involving omitted income. There is no real gray area in the unspotted issue; the taxpayer clearly would owe tax if the unspotted issue were fully litigated (indeed taxpayer's counsel did not think she could even make a nonfrivolous argument that the omitted income should not have been included). After filing the petition, IRS Counsel offers to concede that one issue (the spotted issue in the NOD) and sends a stipulated decision document saying that the deficiency is $0. Because the taxpayers' counsel knows that stipulation that there is no deficiency is not true, can the taxpayers' counsel sign the stipulated decision?
2.        Question: This may be a philosophical question rather than one you can answer here:  What good are ethical rules when they don't provide answers -- i.e., when different ethical lawyers acting ethically can reach different conclusions -- does that simply reward the aggressive attorney (who may even be a lawyer who charges for the benefit offered to the taxpayer by being aggressive within the ambiguities -- even creative ambiguities -- in the ethical rules) and the taxpayer engaging this ethically aggressive attorney?  And would about the more conservative ethical attorney and his client?  Is the ethically conservative attorney providing less than ethically aggressive representation then not zealously representing the client?  There is more but I'll stop there?

The second question is more philosophical, so I will focus on the first question.  Here is the key background: