Exxon Mobil Corp. is urging a Texas federal judge to rule in its favor in a $1.8 billion tax trial over payments made under a natural gas deal with Qatar. The company claims the U.S. government failed to effectively counter its argument during the five-day bench trial held in April, where Exxon sought a tax refund for deductions it believes were wrongfully denied by the IRS.
Dispute Over Qatar Partnership and Tax Deductions
At the core of the lawsuit is Exxon’s claim that its partnership with Qatar’s Al Khaleej Gas venture, formed to extract natural gas, should allow the company to deduct interest payments on what it describes as “production payments.” These payments arose after a 2006 amendment to the partnership, which Exxon says converted Qatar’s share of profit into a debt that qualifies for tax deductions under the Internal Revenue Code Section 636(a).
Exxon argues that the IRS wrongfully blocked these deductions, and that the payments should be considered interest on a mortgage-like loan, which qualifies for tax relief.
Exxon $1.8B Tax Trial : Government Calls Exxon’s Arrangement a “Sham”
The U.S. government, however, contends that Exxon’s claim is part of a “tax ploy.” According to the government, Qatar’s profit share is a lease royalty rather than a debt obligation, making it ineligible for tax deductions. The government also argues that Exxon relabeled the arrangement solely to generate tax benefits, dismissing the notion that a true partnership existed.
