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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Permalink Reply by scott peterson on November 1, 2011 at 11:17am
Thats what my CPA said. Pay the tax & be done with it or you are taking your chances and could get burned. Royalties FYI are taxed at 85% as there is a 15% depletion deduction yearly. Otherwise upfront lease money is taxed as ordinary income.
Permalink Reply by grayhairedgrandpa on November 1, 2011 at 12:33pm
Actually, Obama is on record to eliminate the 15% depletion allowance...too many oil/gas companies making big profits. Unfortunately, the small landowner gas royalties may also be adversely affected.
Permalink Reply by scott peterson on November 1, 2011 at 12:41pm
Yes that is very true unfortunately. Us landowners need to be distinguished from the O & G Co.'s. Contact your representatives & make it clear!
Permalink Reply by Mike h on November 16, 2011 at 7:48am

Is anyone else going to the seminar tonight (7pm) at the Buckeye Career Center (545 University Drive NE New Philadelphia, OH 44663)? Topic is "Taxes on Oil & Gas Leases". Speaker is Gary Lovett, CPA and Owner of Lovett & Company Accounting and Consulting Services. Look forward to seeing you there. I'll post a followup if there is anything interesting.

Permalink Reply by Kathleen on February 22, 2012 at 10:46am

I was under the wrong impression that our o/g minerals were Capital gains and started reading the tax threads. In this thread someone mentioned any good account should know IRC section 636(j) and Treas. Reg. 1.636–2(a). The production payment is not taxable when the lease is made by the landowner-only as oil income is received.

If anyone knows what this really means I thank you for answering it.

Since I had no idea what this is I looked it up and now I've gone stupid.  This is one of the awful Links I've been trying to read http://getirshelp.com/oil-and-gas-industry-audit-guide.htm

One thing I did notice is the bonus money is income period but cannot take the 15% deduction.  Why?  If it's treated the same as a royalty than we should at least get this benefit.  I tried reading about it and I think i have to go find my brain again since it decided to run away it was so over loaded.

I will be getting an accountant now since I'm also reading some stuff about things need to be done within 30 days and I don't know exactly what that is.  People are being vague on the board.

Thanks.

Kath

Permalink Reply by grayhairedgrandpa on February 22, 2012 at 12:38pm

Very simply...bonus gas lease payments are considered income and are reported on Schedule E. There are very few deductions allowed (lawyer's fees, fees for attending gas lease seminars, etc.).

Obviously, you can not take the 15% depletion allowance for a bonus lease payment because nothing (no mineral) was depleted. When you start to get royalties and the gas is depleted (removed) from your subsurface minerals, you will qualify for the 15% deduction.

Permalink Reply by scott peterson on February 22, 2012 at 12:41pm

Exactly

Permalink Reply by scott peterson on February 22, 2012 at 11:54am

Beth, did you mean to say eliminate or reduce?

Permalink Reply by scott peterson on February 22, 2012 at 12:26pm

Thats 40% which means he eliminated completely all income tax. Hard to believe.

Permalink Reply by Nelson Roe on February 25, 2012 at 4:53pm

Hey all, even though I have done some preliminary tax work & planning already, I had the opportunity to meet with Mr. Hannan today to further discuss the strategy they utilize.  I can not go into great detail about it, however I can say that after meeting with him today, I have a bit clearer understanding of what it is they offer.  I believe that it may be helpful for anyone who has the time, to take a few minutes to set up an appointment to meet with him & discuss this to further explore your options.  In meeting with him one-on-one, it does give him more of an opportunity to explain things in a more personalized manner than when he is presenting to a group.  I believe this is what helped me to gain more from todays meeting than I did from the presentation I attended a while back.  He was very easy to talk to, and seemed more than willing to answer any questions that I posed to him & he did so in a way that made sense to me. 

He also provided me a different way of looking at this concept that is somewhat new to us...  Say you read a book & you really enjoyed it & the author of that book wins a Pulitzer prize (or some other highly acclaimed award for literary work) and has great success with that book.  Then say you read a different book, by a totally different author.  This book is not that great... It barely sells enough copies to cover the cost of production, it is essentially a flop...  In both books (if they were both wrote in english) the authors utilized the same 26 letters of the alphabet.  However the author of the first book organized the letters in a way that made the book a success, while the author of the second book did not.  Using the exact same input gave two EXTREMELY different results...  I believe this is a good analogy of the strategy that Mr. Hannan offers versus that of a traditional CPA or planner. 

As with all my posts... This was my personal take on this, please use it as you see fit.

Permalink Reply by Frank Walker on February 26, 2012 at 2:21am

In the immortal words of P.T. Barnum:

"There's a sucker born every minute!"

But am I telling you the truth here?  Well, perhaps not:

Is this the truth, instead?

So now you finally have the story straight.  Or do you?:

The real honest-to-goodness story . . So help me Pete!

You will have to decide for yourself who said what.  Still, the veracity of the phrase stands on its own merit.

It can take years for tax schemes finally to break down and become disemboweled by a lethargic and underfunded IRS bureaucracy.  A key antecedent to the unraveling of many of these otherwise wizardly tax-saving plans is placement into wide use.  The IRS must marshal its scant forces where they can do the most good.  A questionable tax scheme seen infrequently by them might not be worth the time and effort needed to extinguish it.  That same plan used simultaneously by hundreds (thousands?) of persons, and costing the Federal government concomitantly far more income, will draw their fire.

There have been so many of these "tax miracles" in the past.  But each new one is "different".  I suspect there always will be folks who believe and sign up, so strong is the desire to avoid tax payment.  And of course the current purveyors always acknowledge all the past scamsters  while attempting to demonstrate their fidelity to law.  This is classic and, please forgive me, genuinely amusing.

So good luck to the "true believers".  I hope it all works out for you and that you make it through the next ten years without regret (it could take that long for the IRS to roust itself and act against you).  Or, with better fortune, perhaps you will be dead by the time reality is revealed and your children, and not yourself, will end up facing the consequences of your decision.  That would be quite a legacy to leave them.

Permalink Reply by Nelson Roe on February 26, 2012 at 6:23am

Frank,  Josie, I am just curious as to whether you have spoken with multiple qualified tax planning individuals, or if perhaps you are in the field?  I have spoke with at least three different companies/individuals so far.  I will be the first to admit that I am by NO MEANS an expert in anything related to taxes or IRS guidelines.  That is why I do take the time to speak with as many individuals as I can.  I try to make informed decisions by gaining as much knowledge as I can from everything out there.  It is my belief that just because one person says it is so, does not make it so...  The way they interpret something could be totally different than the way another individual interprets something & in all honesty both interpretations could fall within the IRS legalities & formalities.  Many of the IRS guidelines are broad & allow for some freedom, while others do not.  I think that the people who have been dealing with these guidelines in their everyday business for 10, 15, or even 30 years in some cases are going to be familiar with the guidelines that allow for some "wiggle room" as well as the others that need to be strictly adhered to.  When it comes to taxes, I do not think that there is particularly one Nail to hit the head dead center on...  You may try speaking with them prior to judging them, ask about their track record using this & similar strategies.  They are willing to answer. :-)  You may still decide that the strategy is not what you are looking for.  But at least you will have the information to back that up.  Or, once you learn more about it... You may decide that it is something worth pursuing.

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