Replies to This Discussion

Permalink Reply by Arthur P Jensen, CPA on January 5, 2010 at 12:29pm

Bonnie, the lease payments are subject to being reduced by a standard (15% )percentage of gross gas income for depletion deduction, similar to depreciation, and you can deduct expenses incurred by you related to establishing your royalty interest income rights, a Code section 162 deduction. I suspect the advice as to paying 30% in taxes too soon relates to paying estimated income taxes. However, that may be avoided in many cases where this is new income, you have paid other taxes already, and can be paid on April 15th, 2010, without penalty, when your tax returns are due.
The need to pay soon versus April 15th would be determined by doing a tax projection and comparing your projected 2009 to the 2008 taxes. Sometimes this can be determined in a simple phone call if details are available. Your question or request lacked suffcient details for me to determine. If you want to quick discussion, I am available to talk at my cell #410-258-0018 if you care.
Good Luck with your new income source.
Art Jensen, CPA

Permalink Reply by ro on January 11, 2010 at 10:53am

Hi, Sorry to hjack this thread. We are looking for CPA to help our non-profit hunting club convert to profit. We have not signed a gas lease yet. Thanks.

Permalink Reply by Arthur P Jensen, CPA on January 24, 2010 at 8:27am

Hi ‘RO’, your note indicates a search for a CPA to help convert your exempt hunt club to a ‘for profit’ entity. I respectfully submit that you will also discover a need for multiple professional skills, especially since you have not yet signed a gas lease.

I believe you would be served best by a team including, legal, CPA/tax, land man lease consultant, business advisor, and banker. I say this because we recently employed all these skills aiding another hunt club and its members in neighboring Lycoming County. One of the members is the president of a Mansfield based bank, and he lives in Tioga County (1-570-662-8508).

Obviously, you and your fellow members are on the edge of perhaps your largest financial opportunity of a lifetime. As such, establishing the most effective structures are needed up front to maximize the likely gas reserves income potential and minimize income tax burden. To accomplish these two goals the club and all members must select the best club structure and member individual planning choices now. Each member should engage a personal tax advisor for their share ownership.

Members will want to secure and protect their share of this gas windfall from the high ordinary income tax exposure. Current discussed tax legislation is calling for tax rate increases and even loss of depletion deductions. Unfortunately, the unplanned member may face high ordinary taxes as the income cash flow is realized. However, planning choices that are available now can (1) defer taxation, (2) convert some or all income to lower tax rate capital gain treatment, and (3) even structure their investment to be forever income tax free.

These opportunities and related planning flexibility all start up front with the structure design of the hunt club and ownership of its sub-surface mineral rights assets.

So, certainly get a qualified, tax smart CPA, but better yet, consider hiring an advisory team. To get started please respond to this note or call the telephone number above.

Respectfully,
Art Jensen, CPA
apjensen1@verizon.net

Permalink Reply by Jeffrey A Franklin, Esq. on January 22, 2010 at 5:01am

The Tioga County law firm which also has an affilation with a CPA that addresses Marcellus gas leases and related matters I have worked with is as follows:

Brian S. Duff, Esquire
Owlett & Lewis, P.C.
One Charles Street,
P.O. Box 878
Wellsboro, PA 16901
Phone (570) 723-1451
Fax (570) 723-1490
E-mail: BSD@OwlettLewis.com


Jeff

Jeffrey A. Franklin, Esq.
Ryan, Russell, Ogden & Seltzer P.C.
1150 Berkshire Blvd., Suite 210
Wyomissing, PA 19610-1208
PH: 610-372-4761
FAX: 610-372-4177
JFranklin@RyanRussell.com
www.RyanRussell.com

Permalink Reply by JYG on February 2, 2010 at 9:28am

Something that I haven't seen mentioned here in this conversation is the tax implications for lands enrolled in Act 319 - Clean and Green. Any landowner who has lands in this preferential tax assessment (at each county assessment office) should be asking questions as to how much you'll owe the County when the property rolls out of Clean and Green. Lands in Clean and Green are valued in 3 categories: Agricultural Use, Agricultural Reserve, & Forest Reserve. All 3 categories create a varying reduction in your yearly property taxes as long as it continues to qualify. When you change the use to something ineligible (like gas drilling pads or other commercial activity), you now owe 7 years of rollback taxes for the affected area. If you negotiate effectively, you may be able to get the gas company to cover your rollback taxes IF gas drilling takes place on your property. Check with your County Assessment Office BEFORE signing anything if your lands are enrolled in Clean and Green!