Okla Tax-Aide had written this in response to
http://www.rockryno.com/taxes/rent-m...hts-18890-.htm :


----- Marion1E[at]comcast.net wrote:


- quote -

Rent on Box 1. If so list it as Rent on Sch E. Line 3. IF Bonus is from
property in OKLA, it's subject to OKLA Income Tax and Oil Company MAY have
with held
6% for taxes






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Alan wrote:
- quote -

"exactly" in the last paragraph. The 1099-MISC will contain the
amount received probably in Box 2 Royalties. However, there
could also be amounts in Box 1 and Box 3.

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Marion1E[at]comcast.net wrote:
- quote -

contract between the owner of the rights and the oil company that
wants to drill.

Typically, the way this works is that the rights owner signs a
lease with the oil company that provides the company the right to
develop (drill) and produce oil. The lease also typically
contains a provision for royalty payments when the oil is
produced and how those payments will be made. Royalty payments on
oil are typically 1/8 of production but could be higher. Other
terms can vary. The lease is usually for a specific duration of
time.. in your mom's case five years. Usually, when there is no
periodic rental payment in the lease there is a one-time up front
payment for the rights. This is called a bonus. The bonus is
considered to be an advance royalty. Advance royalties are not
subject to any percentage depletion allowances.

So.. the end result is that the payment gets reported on Schedule
E as a royalty payment.

Just to repeat... unless one actually looks at the contract.. one
does not know. As the payment was $20,000, your mom should
receive IRS Form 1099-MISC that should identify exactly what the
payment was for.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote in message
news:bgLbl.4812$MT3.1406[at]bignews4.bellsouth.net...
- quote -

I do: As this is for oil or gas, Schedule C treatment may be
appropriate. This is an exception to the general rule.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<Marion1E[at]comcast.net> wrote
- quote -




I see nothing that would indicate an entry to some place other than Schedule
E, and whether it's technically a rent or a royalty probably doesn't change
the end result of the amount of income or how it's taxed. Is there any
additional income to be expected based on any oil actually being extracted
from the property? Does the contract read such that it lends itself to look
more like lease/rent income or royalty income?





--
Paul A. Thomas, CPA
Watkinsville, Georgia

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Hi everybody,
My mom has mineral rights in Oklahoma. She does not owe the land. She
received money from an oil company so they can do exploratory
drilling. The contract is for 5 years and she got a onetime payment
for the 5 years of $20,000. Does this go on schedule E and if yes
where on schedule E? Is it considered rent?

Thanks you,

Marion

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >