The examination, led by Sens. Chuck Grassley (R-Iowa) and Max Baucus (D-Mont.), will look into the controversy surrounding the record earnings of major oil and gas companies as they continue to charge consumers about $3 a gallon at the pump nationwide.
It also comes on the heels of Exxon Mobil Corp.'s awarding of a $400 million retirement package to former Chief Executive Officer Lee Raymond, who left in December after 43 years with the company. The size of the package has sparked criticism from Capitol Hill and among consumer groups.
Grassley and Baucus noted the Exxon Mobil situation when they asked IRS Commissioner Mark Everson for the annual federal corporate income tax returns for the last five years of the largest 15 oil and gas companies, based on sales.
"Recent press articles have highlighted the industry's record profits, as well as an extremely lucrative retirement plan by one oil and gas industry executive, benefits which may have been subsidized in part by the taxpayers," they wrote.
John Bisney of the American Petroleum Institute, which represents the oil industry, said the companies have nothing to hide.
The documents in question "have been very carefully vetted by the oil companies" and "there is nothing in there that would reveal anything of any nature" about the industry.
"It's interesting that despite repeated investigations by the Federal Trade Commission, there has never been any evidence of signs of collusion by the industry," Bisney said. "We are confident they will come out of this empty-handed, just as everyone has before them."
Grassley noted his committee has jurisdiction over the matter. "We all know there can be a slip between cup and lip on corporate profits made and taxes paid," he said. "I want to make sure the oil companies aren't taking a speed pass by the tax man."
Baucus agreed. "The whole country is trying to figure out what should be done about record high gasoline prices at a time of record oil company profits," he said. "It's relevant to know what the real financial picture is for this industry, because the financial picture for American consumers is pretty bleak."
In their IRS letter, Grassley and Baucus said that while the review of the companies' tax records "will be comprehensive, we would initially like to see consolidated Forms 1120 (the U.S. corporate income tax return), 1118 (foreign tax credits-corporations), 5471 (information with respect to certain controlled foreign corporations), 6765 (credit for increasing research activities), Schedule M-3 (net income (loss) reconciliation for corporations with total assets of $10 million or more), if applicable during those years, and any supplementary schedules, statements, or attachments to any of the foregoing."
The controversy surrounding the industry's record profits started in the wake of hurricanes Katrina and Rita, which last fall disrupted oil and gas production in the Gulf of Mexico, leading to price spikes throughout the country. The Senate Energy and Natural Resources and Commerce, Science and Transportation committees conducted a rare joint hearing into the matter, but oil company executives defended their profits, saying they reflected market conditions.
The Senate Judiciary Committee joined the fray in February with hearings on potential antitrust problems in the wake of major oil and gas industry consolidation. That led committee Chairman Arlen Specter (R-Pa.) to introduce a bill shortly before the Easter recess that requires the Justice Department and the Federal Trade Commission to consider whether future consolidations in the oil industry need closer scrutiny.
And this morning, Exxon Mobil will be issuing its first quarter earnings report, the company's first earnings statement since January when it reported $36.1 billion in 2005 net income, the highest profits in the history of corporate America.
Yesterday ConocoPhillips reported first-quarter net income of $3.3 billion, up from $2.9 billion a year ago. But the company noted that during the quarter, it reinvested 141 percent of its net income into the development of oil and gas resources and its global refining business, excluding the acquisition of Burlington Resources.
API's Bisney also noted the timing of the letter, coming during the House-Senate tax reconciliation conference in which the Finance Committee's proposed changes to the "last-in-first-out" accounting system for the oil industry, which would force companies to pay the Treasury $5 billion over two years, was taken out of the bill.
"Grassley and Baucus in the past have approved a number of what we believe to be punitive" tax policies on the oil industry, Bisney said. "But they don't seem to be faring well in conference at the moment."
Copyright 2006 E&E Daily. All Rights Reserved. Visit E&E Publishing for a free trial.
Most Popular Articles