NEW YORK (CNN/Money) - ChevronTexaco evaded $3.25 billion in federal and state taxes from 1970 to 2000 through an involved petroleum pricing scheme that involved a project in Indonesia, a newspaper reported Friday, citing a new research paper by two accounting professors.

The San Francisco district office of the Internal Revenue Service first leveled accusations of tax evasion against the world's fourth-largest oil company in the 1990s. The company, which is based there, paid $675 million to settle the issue, much less than the $1 billion it had put into reserve for the case, which covers 1979-1987, the New York Times reported.

The Internal Revenue Service continued to investigate, but the company refused to cooperate, resulting in a legal fight in Federal District Court that ultimately led to the public release of hundreds of documents about the Indonesia deal.

The case was later closed, but a new research paper reviews those documents and concludes that the IRS has grounds to reopen the case and should proceed, the Times reported.

"What we believe is that the evidence is there that fraud exists," one of the report's authors, Jeffrey Gramlich, told the paper. Gramlich is a visiting professor at the University of Michigan Business School and professor at the University of Hawaii. "The national office of the IRS settled for far less -- something like a quarter on the dollar -- than what is really owed."

ChevrontTexaco told the Times late Thursday that it had reviewed the research paper and called the allegations a rehash of old issued that had already been settled.

An IRS spokesman said that federal law prevented the agency from commenting.

Chevron and Texaco each owned 50 percent of a joint venture called Caltex before they merged in October, 2001. that company has been absorbed into the merged ChevronTexaco and produced crude oil in a project with the Indonesian state oil company, Pertamina, according to the report.

The research paper says Chevron and Texaco relied on its business with Caltex to avoid U.S. taxes.

Gramlich and his co-author, James Wheeler, professor emeritus of accounting at the University of Michigan Business School, said Chevron cut its U.S. tax liabilities by buying oil from Caltex at inflated prices, the Times reported.