A Landowner called me today to report that Encino sent an IRS Form 1099 For Royalties Received that was inflated several times the actual amount of money they were paid. Also, no Royalty was paid for the last 4 months.
The IRS requires US Citizens to pay INCOME Taxes on Royalties PAID using Schedule E "Rents & Royalties".
"Use Schedule E (Form 1040 or 1040-SR) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in RE-MICs."
IRS.gov Rents & Royalties Instructions: https://www.irs.gov/pub/irs-pdf/i1040se.pdf
I will audit the checks I have received and cashed. If there is an overcharge on the 1099, this is the way I will handle an overcharge:
1) Determine the Royalty Paid by adding up each Encino Check received and cashed. I'll exclude the check for 27 cents paid as 25% Royalty Payment for Total E&P which I didn't cash.
2) I'll follow the instructions for Schedule E and report the Royalty I was actually paid, excluding any amount reported by Encino.
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When I opened my 1099 form this morning I noticed the same thing. I rolled my eyes, thinking that Encino can't get ANYTHING right. I set it aside to look at it later. A few hours later, my neighbor called, saying he had the same experience. I then pulled up the spreadsheet I keep on my production numbers; I use it to run a number of different calculations, including keeping track of what my royalties would be if Encino weren't taking their illegal deductions. Guess what? The number on my 1099 matched the number I should have received if Encino had paid me the same way as Chesapeake did the previous year. I called my neighbor back to ask him to figure out what he would have made if Encino had not taken all the illegal deductions. He called me back to say that if he would have been paid according to his contract, it would have matched his 1099 exactly. It sounds like this is happening to many people. My attorney will get a good laugh out of this.
A "HEADS UP" situation maybe. We got our "1099" yesterday too. Have not really looked at it yet..It came from Montage Resources. This is one of the first things we will look at and check out.
Thank you for posting this warning.
Wait until You learn what a 12% to 20% royalty looks like, plus you are being paid for NGLs rather than the processing charges for NGLs that is being used to cancel the amount paid for NGLs plus the excess charges being used to reduce your bogus Gas and Oil royalty. Ohioans are paying to be robbed, and no one has made a dime off of NGLs, "The Reason Chesapeake is in Ohio"
Whatever your Oil volume was for the year, multiply by 85 to account for the 200 barrels removed per Tanker Truck vs the reported 15 barrels per Tanker reported, plus over 300 gallons of oil per month being separated out of the well product flow at Kensington.
The monthly Trip Tickets for each well and the Kensington Plant to Marthon Plant in Canton, don't lie. Ask a Tanker Truck Driver, they know the Truth.
Don't forget to multiply your calculated royalty by 1.25 to account for Total E&P's 25% ownership Royalty Due.
I have the Evidence and Know the Truth. All of Truth, not just O&G.
The Change in Our World is about to speed up. Get ready and don't forget the Popcorn.
Thank you Ron for the good detail on confirming royalties not paid.
Also good for you in reporting and filing to the authorities.
Okay, after a little investigation... First of all, go get your magnifying glass. If you pull out your 1099 from Encino and look a the three boxes under the box that contains your name and address, you will see a box with two lines in a very small font. One line will start with "prod./taxes", the second starts with "oth deds". Presumably, these stand for severance and ad valorem taxes and other deductions (gathering, processing, transportation, etc.) If you subtract these two figures from the number in the "Royalties" box, you should come up with your net royalty for the year.
I would point this out to your accountant so they don't figure your tax on the number in the Royalties box. As this is my first experience with 1099s with royalties and deductions, I don't know I don't know if this is standard practice. It seems to me they could have been a little less obtuse about the matter, but then again, we're talking about Encino, the company that prides itself on transparency,
My question, is Encino trying to take their 'tax deduction(s)' early by assigning as income the deductions from Royalties paid, thereby lessening their income and shifting more to the landowner?
Good advice Joe...your CPA/Accountant should be able to answer your questions and steer you straight.
Devious plan....if you all sent a 1099 to Encino for the difference/deductions from royalties that you paid, it would put the ball back in their court...might at least get their attention.
Good luck to all.
Encino has provided this information to GMS. Hopefully this clears up any confusion. Also see info at this link - Landowner%20Tax%20Information.pdf