Edgemarc Paid up 5 year lease on 200+ acres
The bonus payment is paid in one lump sum.
My tax preparer insisted it must be reported as that entire lump sum in the year received.
I decided to check with Dad's tax firm. They said report equal 20% each of the five year lease term and pay estimated payments..
It's rent. It's rent for five years. Each 20% is in return for one year's right to explore for and produce gas & oil.
Yes, there is a risk of IRS audit and eventual rejection of that position, they advised. But not a lot of risk in their estimation.
Since the difference between the two approaches is nearly six figures, and I have zero doubt that I can much more responsibly spend that money than the varied governments taxing me...I'll choose to go with the 5 year treatment.
Anyone care to share their experiences with their chosen tax treatment of Edgemarc leases covering significant acreage?
What township are you located in? Shell paid in full 4 months after the signing. No clue about Edgemark.
The bonus is paid in full as stated.
The issue is how that bonus is to be treated tax-wise.
The acreage is located in Allegheny & Venango townships.
My understanding is that if you don't report your income correctly, the penalty is double what you owe.