"Kenneth G. Jarvis, CPA" <kgjarvis[at]cpadvantage.com> wrote:

- quote -

Yes.

- quote -

The depletable quantity is 1000 barrels a day. It's in the
publication you mentioned and IRC 613A. But since oil is
around $30 a barrel that means revenue has to exceed $30,000
(est) a day before you have to worry about not geting a
standard 15% depletion.

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Kenneth G. Jarvis, CPA wrote:

- quote -

Yes.

- quote -

Keep reading. Your depletable oil quantity is 1,000
barrels, unless you have stripper wells. The remittance
advices may or may not have information about production
levels, but you may be able to back into it if you know what
percentage of income is going to your client, and the
average price of oil during the year.

Phoebe

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"Kenneth G. Jarvis, CPA" <kgjarvis[at]cpadvantage.com> wrote:

- quote -

Probably. The "depletable oil quantity" is 1,000 barrels
per day (times 365 days in a year = 365,000 barrels). At
$20 per barrel this is more than $7,000,000 gross per year.
Most folks I know don't produce that much.

This also assumes that your client's predecessor didn't make
a "tainted" transfer between 1975 and 1990, isn't a retailer
or refiner, and some other stuff. Read Sec. 613A and the
regs. (particularly if your client is a $6,000,000 woman).

Tom Roth, E.A. in Chicago

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Taxpayer inherited land and rights to oil associated with
that land in 1972. Taxpayer sold the land in 1994, however,
the taxpayer retained royalty rights (Royalty Owner) to the
oil. Taxpayer receives royalties throughout the year and is
reported on a 1099-MISC. Taxpayer does not have any
activity with the oil except for receiving royalties.

Question
1. Can the taxpayer take a depletion deduction using the
percentage method?

2. According to Publication 535 instructions, in order to
take the depletion, we have to do some comparisons (see
below).

IRS Publication
Generally, as an independent producer or royalty owner, you
figure your percentage depletion by computing your average
daily production of domestic oil or gas and comparing it to
your depletable oil or gas quantity. If your average daily
production does not exceed your depletable oil or gas
quantity, you figure your percentage depletion by
multiplying the gross income from the oil or gas property
(defined later) by 15%. If your average daily production of
domestic oil or gas exceeds your depletable oil or gas
quantity, you must make an allocation

The questions is what if the taxpayer has no clue as to what
the average daily production of domestic oil or depletable
oil quantity.

What does the taxpayer do? Just use 15% against gross
income for the depletion deduction? If so, what is the
supporting authority. Thanks in advance.

Best Regards,
Ken

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