Steven Caldwell, CPA wrote:

- quote -

If I had 1,000 lines of JIBS and $100 of payments, I'd
estimate before I'd add, and if an auditor wanted to add,
more power to them. Personally, I wouldn't bother to
estimate for 49 pages of JIBS on one well, but I have a hard
time seeing much return-prep savings by estimating in that
situation, either. I just don't see estimating as by
definition unacceptable.

- quote -

I actually asked around to the people I know who do good O&G
work, and they all said they'd have no issue with a client
making a reasonable estimation of LOE vs. equipment, rather
than providing all the JIBs. So at least in my area
(Oklahoma), I'd say it's not considered unethical.

Phoebe

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- quote -

Sorry, but I just can never agree with that. I also just
can't see how IRS or the courts would agree that it would be
acceptable to use an "estimate" when the actual information
is readily available.

- quote -

Actually, I think they do a pretty good job of doing O&G
work. My problem is NOT with thinking that they do not know
"how" to do O&G work, just in their ethics.

Besides, if you practice in LA & don't know how to do O&G,
you won't last very long.

Especially in my city which is second only to Houston to O&G
operations. And, most of those in Houston also have some
presence here.

- quote -

Quite different IMHO.
See my above comments about estimates.

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Steven Caldwell, CPA wrote:

- quote -

While 49 pages seems like a huge amount, IME it's not that
bad. You grab a highlighter and scan down each page,
looking for equipment, add up all the highlighted bits, and
the rest is LOE. IME most JIB providers use relatively
large type, and an entry takes several lines, and there's
white space, so you have maybe a couple hundred line items
to glance at. As opposed to a 49-page Sch D gain/loss
schedule, which would run in the thousands. Maybe 30
minutes of work, tops, especially on a JIB for just one
well.

- quote -

It may be that the tangible amounts weren't material, or
that the one guy was sufficiently involved in the operation
of the well that he was able to make a good estimation of
the percentage split. If it was a random number to keep
fees down, that seems unreasonable.

- quote -

More checks <> more lines on the JIBs, depending on what was
going on with the well.

- quote -

As long as the allocation is reasonable, it's not negligent
to use it, IMHO. "Just call it all LOE" would be negligent.

- quote -

I'd worry more about them not knowing how to do the O&G
returns, then.

- quote -

You are.

- quote -

It probably isn't a big thing, but it might be, depending on
whether the guy who made the allocation estimate did it
reasonably or not.

When you're calculating cost depletion, do you have your
client pay a geologist to independently estimate reserves,
or would you accept "Partner A says it's about X barrels"?
This is sort of similar.

Phoebe

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Because of being in the area of Hurricanes Katrina & Rita, I
am still doing a couple of 2004 returns which are not due
until 2-28-"06".

My client is 1 of 3 guys in several Oil & Gas S Corps & LLCs
& gets K-1s from another firm who does all of the S Corps &
LLCs and also the individual returns of the other 2 guys.
Since I was doing my client's returns before he got involved
with the other 2, I have continued to prepare only his
individual income tax returns.

For potential liability reasons each of the 3 guys
separately formed their own Single Member LLCs in late 2004
to run through a Working Interest that each invested in.
They just did not want to run it through 1 of the existing
joint S Corps nor LLCs.

In trying to get all of the JIB statements from my client
which was taking a lot of his & his Secretary's time, 1 of
the other guys suggested that since "their" accountant had
already gone through all of that detail and recapped all the
various intangible & tangible expenses, it would save a lot
of time if I would just get the information from them. I
had no problem with this since for only 3 checks written in
2004, there were 49 pages of detailed JIB statements which
"I" would NOT have to decipher.

Well, I spoke to the other firm & was told that they in fact
had "NOT" gone through the numerous pages of JIB statements.
Instead, they were told by 1 of the other 2 guys to merely
apply a ?% / ?% intangible / tangible factor to any
payments made, because the other 2 guys "did not want to pay
that firm to properly accumulate the information". Even
though each guy wrote only 3 checks each in 2004, they each
wrote SUBSTANTIALLY more checks in 2005 before they each
eventually sold their Working Interest in 2005. So those 49
pages of detailed JIB statements for 3 checks in 2004 would
grow substantially in 2005.

Agreeing to using such an "arbitrary" allocation to me seems
to be negligence on the part of the other firm & I not
willing to do that for my client. If audited, it seems to
me that other 2 guys are not only setting themselves up for
gross negligence penalties, but are also dragging the other
firm into the same gross negligence penalties.

I have always had my suspicions that the other firm was
"cutting corners" so as to reduce their fees, but have never
had any real proof until now. They are known for their
"low" fees. I always felt that "I" was protected because I
was merely relying on K-1s that were prepared by that other
firm.

QUESTIONS:

Am I being overly cautious?
Or is it "no big thing" as represented to me by that other
firm?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >