I think there was a general discussion a while back but I can't seem to find it, so....
For those folks getting significant signing bonuses, how have you dealt with the tax consequences of being pushed into a higher tax bracket for the year you get the signing bonus? What about Alternative Mimimum Tax (AMT)? What other issues have you run into?
Same sorts of questions for royalty payments.
The reason I'm asking is that this gets into some specialized stuff and at least one accountant I spoke with was blowing smoke and clearly didn't have a clue about O&G income (signing bonus, royalty treatment, etc).
I consider the issue addressed in this thread to be one of the most important issues that the landowner should thoroughly understand or, alternatively, has a professional to provide advice. I will state unequivocally that there are some serious miss-truths and bad advice earlier in this thread. One of the most important documents pertaining to oil and gas signing bonuses is Revenue Ruling 68 -- 606. If you're using a professional ask about this revenue ruling. If your professional doesn't have a clue, you'd better move on. I also wholeheartedly disagree with statements that one cannot legally avoid paying taxes on oil and gas revenue. The oil and gas lease signing bonus presents a larger challenge than the royalty payment itself. In fact, generally speaking, one only pays taxes on 85% of the income from the royalty payment due to the allowable depletion allowance. IRC section 263 (c) and 59(e) addresses my earlier statement that the entire income can be legally protected from taxation. However, not everybody qualifies for the use of this strategy. Please, either take the time to educate yourself, or find a professional who is well-versed on this issue.
You're welcome Harry. As an aside, I agree with the two post immediately below and support Nancy's recommendation to contact one's Congressman and Senator. Regrettably, I believe the 15% allowance will be removed from the tax code in the near future due to the fed's despirate need for cash flow into the Treasury.