BLOOMBERG NEWS
The state is still gathering information before deciding whether to pursue a tax fraud suit against ChevronTexaco, which has been reported to have dodged millions in state taxes.
State still undecided The state is still gathering information to decide whether to pursue a $563 million tax fraud lawsuit against ChevronTexaco Corp., which is alleged to have dodged billions of dollars in state and federal taxes through a crude oil pricing scheme in Indonesia.
on Chevron lawsuit
The attorney general has received some
IRS documents but is seeking moreBy Tim Ruel
truel@starbulletin.comThe Attorney General's Office has received a limited number of confidential documents held by the Internal Revenue Service, which settled a tax investigation into Chevron in 1994 for a $675 million payment from the company. The Attorney General's Office is seeking more documents that would determine the potential amount that Hawaii could seek from Chevron.
The $563 million estimate for Hawaii's tax liability is based on 17 documents that have become public from a federal audit of Chevron. More than 500 audit documents remain under wraps.
The Attorney General's Office is asking Chevron for permission to allow the Chicago law firm Winston & Strawn to review audit documents that Chevron has already given the state.
Albert Chee, a Chevron spokesman, declined comment when asked whether Chevron would give such permission.
The state investigation was prompted by a national report in September from two accounting professors who said Chevron committed tax fraud over several decades by inflating its costs of buying crude oil from a joint venture in Indonesia.
The joint venture, known as Caltex, was owned by Chevron and Texaco, which have since merged into one company.
The report says the $675 million IRS settlement came far short of the billions of dollars Chevron allegedly owes.
The IRS settlement only covered the tax years from 1979 to 1987. It's possible that the tax scheme began as early as 1963, said James Wheeler, co-author of the report and a retired professor from the University of Michigan. Based on recent financial statements from Chevron, Wheeler argues that the firm is still using the scheme today. "I know they're still doing it," Wheeler said at a legislative hearing yesterday.
Chevron has said that the allegations are without merit and the report contains nothing new.
The large amount of money, as well as the reputations of those behind the case, have been selling points for Hawaii to file a lawsuit. Other states are considering the matter.
A potential settlement from Chevron, the second-largest U.S. oil company, could snag anywhere from $100 million to $1 billion for Hawaii coffers, Wheeler said.
Yet, Hawaii officials have warned that tax fraud is not easy to prove.
The state's interest in the case came at the end of the Cayetano administration, which hired Winston & Strawn. The state only faces a cost if the case is dropped and Winston's contract is ended. Winston has agreed to cover all the costs of a lawsuit, and hasn't run up any substantial costs.
Upon taking office last year, Gov. Linda Lingle said the Chevron tax matter was one of the top five legal issues facing the state.
"I feel very strongly about this because when anybody doesn't pay their taxes, it means that the tax burden is then spread to the rest of us to a greater extent than it would have been otherwise," Lingle said last year.
Lingle is being advised in the investigation by Kurt Kawafuchi, state tax director, and Randy Roth, Lingle's senior policy adviser. Roth and Kawafuchi have discussed the case with Wheeler. Roth said the case is still being reviewed and considered.
Yesterday, the state Senate Committee on Commerce, Consumer Protection and Housing adopted a formal resolution to urge the administration to sue Chevron over tax fraud.
