Minimizing tax consequences...

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).

 

Mike

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Replies to This Discussion

Permalink Reply by Patrick DeBerry on August 31, 2011 at 12:21pm
Mike, Once again I must stand corrected (seems to be a pattern here). I checked with my tax accountant last week about deducting leagal fees incurred during the lease process. Sure enough they are. I don't know if I would call it a slam dunk but, it should save me a few thousand $. If this forum does nothing else but make you check things out and find answers for yourself,  it is well worth the time to read. Thanks to all who post. OBTW same is true for pipeline ROW agreements ect.
Permalink Reply by mark moll on September 1, 2011 at 7:53am
If the bonus money is paid to lease your land for 5 years, why could you not spread the income over 5 years, to stay out of those high tax brackets?
Permalink Reply by Finnbear on September 1, 2011 at 8:22am
Depends on whether they are offering a "Paid-Up Oil and Gas Lease" which has one lump sum paid up front or a "5 Year Oil and Gas Lease" which is paid in 5 annual installments. With the 5 year option they could drill in the first year and then the lease would be considered "Held By Production" and they no longer have to pay the signing bonus.
Permalink Reply by Al Cramblett on September 9, 2011 at 11:36am

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.

Permalink Reply by time will tell on September 9, 2011 at 1:14pm
Thank you for your advice Al .
Permalink Reply by Al Cramblett on September 10, 2011 at 6:17am

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.

Permalink Reply by grayhairedgrandpa on September 9, 2011 at 2:41pm
Just a thought on the margin...one of the "big corporation" tax breaks that Obama is trying to eliminate is the 15% depletion allowance. Unfortunately, it also impacts the landowner's favorable tax treatment of royalties.
Permalink Reply by Nancy Mosley on September 9, 2011 at 3:32pm
Time to call your representatives and senators. The National Association of Royalty Owners is fighting this battle, making a distinction between the "regular" royalty owners and the big guys. We need to keep reminding those in Congress of this.
Permalink Reply by James L. Mitchell on September 10, 2011 at 11:57am
Grandpa:The tax elimination does not include the land owners tax treatment.This is just another "TEA PARTY" lie.
Permalink Reply by grayhairedgrandpa on September 10, 2011 at 3:01pm
Hmm...I didn't realize that the National Association of Royalty Owners (NARO) and several online legal experts (who indicate landowners would lose their depletion allowance) were scumbag "Tea Party" members. Thanks for the heads-up.
Permalink Reply by grayhairedgrandpa on September 11, 2011 at 9:09am
lol
Permalink Reply by michael j belaj on September 10, 2011 at 9:22pm
I think now is the time to sign up their is a meeting at Pritchard Laughlin Civic Center this Monday at 7:00pm Glen Highway Cambridge Ohio. I will be signing off of this post I have injoyed every ones information and discussion I however did not like the name calling in the past couple days. It looks like the money is starting to flow and the atorneys  will take over the site from here on. Good luck to every one Michael J Belaj 

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