Texaco, Inc. v. Commissioner
United States Court of Appeals for the Fifth Circuit
98 F.3d 825 (1996)
- Written by Matthew Celestin, JD
Facts
Texaco, Inc. (plaintiff) and its subsidiaries and affiliates were in the oil business. One of Texaco’s affiliates, Texaco International Trader, Inc. (Textrad), purchased crude oil from the Saudi Arabian government. The Saudi government issued a general restriction in Letter 103/z by which it required all purchasers of Saudi crude oil to resell the oil at a specific below-market price. Textrad resold Saudi crude oil to its refining affiliates at the below-market price, pursuant to Letter 103/z. The majority of the crude oil sold by Textrad went to refining affiliates located outside of the US. Because Letter 103/z only applied to the sale of crude oil and not to the sale of products refined from the crude oil, Textrad’s domestic and foreign refining affiliates sold refined products for high profits. Texaco’s US affiliates reported taxable income from the oil sales, but Texaco’s foreign affiliates did not. The Commissioner of Internal Revenue (the Commissioner) (defendant) reallocated income from the foreign affiliates to Textrad, pursuant to § 482 of the Internal Revenue Code, claiming that Textrad had shifted profits out of Texaco’s US income to avoid tax. The tax court held that the Commissioner’s reallocation was improper under § 482 because Letter 103/z operated as law. The Commissioner appealed.
Rule of Law
Issue
Holding and Reasoning (Davis, J.)
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