NEW YORK, JAN. 13 -- Texaco Inc. said today that it has been told by the Internal Revenue Service that it may owe $6.5 billion in federal taxes, a claim that could unravel an agreement to settle Texaco's costly legal battle with Pennzoil Co.
Texaco's predicament has implications for at least three other major U.S. oil companies: Exxon Corp., Mobil Corp. and Chevron Corp. It was unclear, though, whether the other companies faced potential tax bills as large as Texaco's.
Texaco is in the midst of a bankruptcy court reorganization brought on by a record $10.3 billion legal judgment won by Pennzoil in a dispute over a 1984 merger contract. Pennzoil and Texaco agreed to settle their lawsuit in December when Texaco agreed to pay Pennzoil $3 billion in cash.
Before taking effect, the Pennzoil settlement must be approved by two-thirds of Texaco's shareholders. Lawyers involved said the IRS informed Texaco of its potential tax bill because if shareholders approve the settlement, the IRS might lose its legal right to press its tax claims.
Texaco said that some portion of the $6.5 billion potential bill is attributable to a new IRS theory about taxes Texaco may owe on Saudi Arabian crude oil it sold between 1979 and 1981. Such a theory would likely be applicable to other oil companies that sold Saudi crude then.
Texaco said it did not know how much of the $6.5 billion was derived from the IRS's new theory, but said it believes the theory "may account for a significant portion of the total." The company said it has set aside financial reserves for other IRS tax claims, but not for any relating to transactions in Saudi oil between 1979 and 1981.
An IRS spokesman declined to comment. If the IRS's $6.5 billion claim is eventually approved by the courts, it would devastate Texaco's financial position. But since the IRS claim is certain to be disputed, Texaco would not have to pay anything when its bankruptcy reorganization is approved.
The IRS is in the midst of litigation with Texaco over a number of tax claims. Any litigation over the $6.5 billion issue could last for years. But the IRS's claim has immediate implications for Texaco's proposed bankruptcy settlement.
Exxon, Chevron and Mobil, which are partners with Texaco in operation of the Saudi-owned Arabian American Oil Co., said that the IRS had not informed them of any tax liability and that they did not expect to owe taxes on Saudi oil sales during the 1979 to 1981 period.
"Exxon has told the IRS that we are certain we owe no new taxes under this new IRS theory," an Exxon spokesman said. "The IRS has not indicated they will seek any amount from Exxon under this new theory. We have not set aside any reserves in respect to this new theory since we believe no amount is due."
"We really don't think we have a problem," said a Mobil spokesman.
All four Aramco partners obtained Saudi oil between 1979 and 1981 at prices below those prevailing in the world market. In some cases, the companies then sold the oil at the market price, sometimes through Western European subsidiaries, according to oil industry officials. It appears the IRS has claimed that Texaco failed to pay full taxes on those profits.
Besides Texaco, the biggest loser in this latest turn of events may be Trans World Airlines Inc. Chairman Carl C. Icahn, who is a major Texaco shareholder and has been locked in a dispute with the company's management. Among other things, Icahn is seeking to strip away Texaco's protections against an unfriendly takeover and it appeared tonight that he may soon have the support of Texaco's shareholder committee.
Even if Texaco eventually loses its $6.5 billion dispute with the IRS, it is unlikely to have to pay out any back taxes for years, and it may well be able to negotiate a lesser settlement. But uncertainty generated by the IRS claim has already hit Texaco's stock price, adversely affecting Icahn, who has been buying shares.
Trading in Texaco stock on the New York Stock Exchange was suspended this afternoon pending disclosure of Texaco's statement and did not resume before the market closed. When trading was stopped, the stock was priced at $40.50. Tonight, the stock was selling in the so-called third market for between $37.50 and $38.50 per share, according to a trader at the Jefferies & Co. brokerage. The third market is a term for off-exchange trading in securities listed on stock exchanges.
Because Icahn acquired his approximately 15 percent stake in Texaco at an average cost of $34 per share, Texaco's sinking price will cost him millions of dollars on paper, at least temporarily.
Baine P. Kerr, chairman of Pennzoil's executive committee and a key figure in s negotiations with Texaco, said he was "shell shocked" by Texaco's announcement. Kerr said that he did not know how the potential tax bill would affect Icahn or the settlement vote.
Washington Post staff writer Jerry Knight contributed to this report.