Is Money For A Gas Pad Taxable?

My cousin recently got a gas pad in Bradford County Pa.   He received a check for the pad and the eleven acres of woods that was cut down.   It was considered for pad and "damage" payment.   Is this money all taxable or only part of it?

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Permalink Reply by Finnbear on January 12, 2012 at 3:22pm

The tax people I have spoken with say it all depends on how the lease is worded. If it is a "pad fee", "spud fee", " siting fee", etc then it may be considered income by the IRS - consult a tax adviser who has extensive experience with oil & gas. If the lease specifies that it is "compensation for loss or damage" then it is treated in the same manner as an insurance claim payment and is not considered income. This appears to be one more reason why lease wording is SO important. Either way, consult a good tax adviser who knows the O&G industry concerning your individual situation.

Permalink Reply by Armstrong Land on January 16, 2012 at 2:39am

damages are not taxed.  they count as compensation for depreciation of surface - no taxes owed on payments for damages - if it were a spud fee, taxes are owed.

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