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COPAS - APA EXAM > Tax Module Upload1 > Flashcards

Tax Module Upload1 Flashcards

1
Q

Includes ownership of both surface and minerals below (and limited air above)

A

A Fee Simple Interest

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2
Q

Used to describe all right to oil and gas (and solid minerals) in the ground

A

A Mineral Interest

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3
Q

A non-operating interest retained by the assignor; entitled to specific portion of production

A

A Royalty Interest

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4
Q

In-Kind

A

Actual Production

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5
Q

In-Value

A

Proceeds from the sale of production

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6
Q

An interest that is free of any burder for exploation, development or production costs

A

Royalty Interest

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7
Q

An interest received by the assignee; burdened by costs for exploration and development

A

Working Interest

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8
Q

Non-operating interest retained by the working interest owner who assigns his obligation for development costs

A

Farmout

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9
Q

The WI owner exchanges a right to proceeds of production for cash or other consideration

A

Carve Out

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10
Q

Interest in which the life is limited to the life of te working intrerest in which it derived

A

Overriding Royalty Interest

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11
Q

Entitles the owner to a specified amount of proceeds of production as measure by net profic on the lease

A

Net Profits Interest

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12
Q

An interest that carries no burden of costs, but receives no money if the lease operates at a loss

A

Net Profits Interest

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13
Q

Entitles the holder to production for 1)specified time limit, 2)specified production, 3)specified money received

A

Production Payment

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14
Q

In order to deduct depletion, the interest must be an

A

Economic Interest

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15
Q

For an interest to be economic, it must represent

A

A capital interest in the minerals in place

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16
Q

For an interest to be economic, it must provide the right

A

To share in the minerals produced

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17
Q

For an interest to be economic, the owner must look only to

A

Proceeds from the sale for a return of capital

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18
Q

For an interest to be economic, the interest must exist

A

In some form of a legal relationship

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19
Q

A royalty interest is what type of interest

A

Economic Interest

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20
Q

A working interest is what type of interest

A

Economic Interest

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21
Q

An ORRI is what type of interest

A

Economic Interest

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22
Q

A NPI is what type of interest

A

Economic Interest

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23
Q

A production payment is only an economic interest when

A

Proceeds are pledged to the development of the property

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24
Q

A production payment is only an economic interest when

A

Production payment is retained by the lessor (landowner) as a part of the leasing transaction

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25
Q

Cornerstone of US oil and gas taxation

A

Unit-of-property concept

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26
Q

IRS Definition of Property

A

Each separated interst owned by the taxpayer in each mineral deposit in each separate tract or parcel of land

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27
Q

Each type of interest (working, royalty, ORRI, NPI, and production payments are treated as

A

Separate property

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28
Q

The exception to interests being treated as separate property is when acquisition consists of

A

The same type of interest from the same assignor, in contiguous tracts of land

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29
Q

If a taxpayer aquires more than one operating interest in a single tract, he must

A

Combine the interest and treat as a single property

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30
Q

If a taxpayer aquires more than one non-operating interest, he may

A

Only combine them with the permission of the IRS

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31
Q

What two interests can never be combined

A

Operating and non-operating

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32
Q

Separate oparting interest participating in pooling and unitization are treated as

A

Oen property for the period of the participation

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33
Q

Depletion is calculation on a

A

Property by property basis

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34
Q

Intangible drilling costs are calculated on a

A

Property by property basis

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35
Q

Geological and geophysical costs are accounted for on a

A

Property by property basis

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36
Q

Gain and loss on disposition are calculated on a

A

Property by property basis

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37
Q

Sale or exchange could constitute a

A

Capital Gain

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38
Q

A lease bonus or delay rental is what type of income

A

Orindary

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39
Q

A sharing arrangement is generally not a

A

Taxable event

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40
Q

Classifications of assignments of interest depend on

A

Type of consideration (payment) and interest transferred or retained

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41
Q

A transaction in which cash or its equivalent is received and cas is not pledged for development of property

A

Sale or exchange

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42
Q

When an owner of any type of interest assigns all of that interest

A

Sale or exchange

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43
Q

When an owner of any type of interest assigns and retains the exact same interest

A

Sale or exchange

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44
Q

If Sam sells his WI to Jane for cash, he has made a

A

Sale or exchange

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45
Q

If Sam sells 50% of his WI to Jane for cash but keeps the other 50% and same uses the cash to buy a new car, he has made a

A

Sale or exchange

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46
Q

Bill sells his royalty interest to JD minerals for cash, he has made a

A

Sale or exchange

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47
Q

If the WI owner carves out an NPI or ORRI to Jill for cash, he has made a

A

Sale or exchange

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48
Q

If the WI owner carves out a production payment to Jill for cash, he has made a

A

Loan (entered into a loan agreement)

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49
Q

An owner of an operating right assigns all or part of those rights and retains a continuous non-operating interest

A

Lease or sublease

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50
Q

For a lease or a sublease, income is recognized when

A

Cash is received

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51
Q

The assignment of any type of interest that is NOT a working interest is not a

A

Lease or sublease

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52
Q

Only the assignment of a working interest can be a

A

Lease or sublease

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53
Q

An interest defined as when the principle consideration for an assignment is the assumption of burden to develop

A

Sharing arrangement

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54
Q

If Same assigns Jane 50% of his WI in exchange for cas to be used exclusively for development, he has made a

A

Sharing arrangement

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55
Q

A farmout is a type of

A

Sharing arrangement

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56
Q

Does a sharing arrangement create a gain or a loss

A

No

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57
Q

A farmee must capitalize as leasehold cost

A

That portion of IDC and equipment costs applicable to the portion of the working interest that is retained by the farmor.

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58
Q

A type of sharing arrangement where the operator will pay a disproportionate share of the development expense

A

Carried Interest

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59
Q

The carrying party in the carried interest sharing arrangement is entitled to

A

All income and deductions applicable to its working interest prior to payout

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60
Q

What act promulgated the Uniform Capitalization Rules

A

Tax Reform Act of 1986

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61
Q

What governs the capitalization of producing, acquiring and holding property

A

Uniform Capitalization Rules

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62
Q

The UCR applied to both direct and indirect costs allocable to

A

Real and tangible personal property

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63
Q

The UCR regulations do specifically exclude what costs from UCR

A

Intangible drilling, exploration and development costs

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64
Q

Costs for geologists, aerial photography, surface and subsurface mapping, loggin, core holes, and surveys are

A

Geological and Geophysical costs

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65
Q

Geological and geophysical costs that lead to an acquisition are

A

Capitalized as apart of the property

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66
Q

Geological and geophysical costs that do not lead to an acquisition are

A

Deducted in the year of the abandonment of the acquisition project

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67
Q

All costs related to project area costs are

A

Capitalized in the project area

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68
Q

When areas of interests are indentified, project area costs are

A

Allocated equally to each specific Area of Interest

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69
Q

When leases are acquired, area of interest costs are

A

Allocated to the leases baed on acreage

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70
Q

If only one lease is acquired, all costs must be

A

Allocated to the one lease acquired

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71
Q

IF no leases are acquired for the area of interest, G&G costs may be

A

Deducted in the year the efforts in that area of interest are abandoned

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72
Q

A payment for the privilege of deferring development of a property is called a

A

Delay rental

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73
Q

A delay rental is usually expressed as a

A

Fixed sum per acre

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74
Q

A delay rental is usually paid

A

Yearly for the primary lease term

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75
Q

The IRS treats delay rental as

A

Rent income

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76
Q

The IRS claims that delay rentals should be

A

Capitalized as pre-production costs

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77
Q

A payment made from the lessor to the lessee in consideration for granting the lease

A

Lease bonus

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78
Q

A lease bonus is usually expressed as a

A

Fixed sum per acre

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79
Q

A lease bonus is usually paid in

A

Lump sum or installments

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80
Q

For income tax purposes, lease bonuses are regarded as

A

Advanced royalties

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81
Q

Cost of equipment ordinarily consiered to have salvage value

A

Tangible drilling costs

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82
Q

Tangible drilling costs must be

A

Capitalized and depreciated

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83
Q

Tools, surface and production casing, well head equipment, tanks, pump, seperators are considered

A

Tangible drilling costs

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84
Q

The costs of casing is considered tangible drilling costs even though

A

The casing is cemented in place and is not recoverable (no salvage value)

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85
Q

Expenditures incident to and necessary for the drilling of wells and their preparation for production are considered

A

Intangible drilling costs

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86
Q

Wages, fuel, and supplies are what type of costs

A

Intangible drilling costs

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87
Q

Costs to prepare a site for drilling including ground clearing, drainage, road building, surveying, and geological work are

A

Intangible drilling costs

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88
Q

The costs to construct physical facilities nescarry to drill and prepare the well for production are considered

A

Intangible drilling costs

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89
Q

The costs of labor involved to install “salvageable” items required to complete a well are treated as

A

Intangible drilling costs

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90
Q

Taxpayers must make a one-time binding election to

A

Capitalize or expense IDC

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91
Q

The choice to capitalize or expense IDC is at the entity level and is made only once when the taxpayer

A

Drills its first well

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92
Q

If the election is to capitalize IDC, costs are depleted over

A

The life of the reserves

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93
Q

Foreign IDC must be capitalized and amortized either through

A

Depletion or straight -line (SL) 10yr life

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94
Q

Foreign IDC does not have the option to

A

Elect to capitalize or expense IDC

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95
Q

If the election is to deduct (or expense) IDC, each succeeding year, an election is made to

A

Either capitalize or deduct any ratio of IDC in that year

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96
Q

If the option is to capitalized a portion of the IDC, it must be amortized

A

Straight-line over 5 years (60mths)

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97
Q

A type of service well that puts water or gas back into a producing formation to aid in receovery is

A

Injection well

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98
Q

A type of service well that provides water to the drilling site is

A

Water well

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99
Q

A type of service well that is drilled to diposed of production water, handles, water produced after completion is a

A

Salt Water Disposal well

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100
Q

A type of service well drilled to obtain water or carbon dioxide used for seconary or tertiary recovery

A

Supply well

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101
Q

What two types of services wells are considered incident to the drilling of an oil and gas well

A

Injection well and Water Wells

102
Q

Wells that are considered incident to the drilling of an oil and gas well that have no salvage value are

A

Allowed IDC treatment if they were drilled for the production of oil and gas

103
Q

What two types of services wells are not considered incident to the drilling of an oil an gas well

A

Salt Water Disposal well and supply well

104
Q

Wells that are not considered incident to the drilling of an oil and gas well are

A

Not allowed IDC treatment

105
Q

Services wells that must be capitalized and depreciated are

A

Salt Water Disposal Wells and Supply Wells

106
Q

For depletion purposes, regulation require a portion of “general and financial overhead” to be

A

Capitalized (including in the cost of producing properties)

107
Q

Trada association dues, some interest expense, salaries of officers, general office expenses, legal expenses are

A

Expenses to be considered a general and finacial overhead for capitalization

108
Q

Overhead must be allocated

A

Among properties

109
Q

The adjusted basis of those interests in oil and gas properties that have become totally worthless during the taxable year

A

Abandonment Costs

110
Q

Abandonment costs can be deducted only if they meat the following two requirements

A

Loss must be evidenced by a close and complete transaction and loss must be fixed by an identifiable event

111
Q

An identifiable event that can suffice to deduct abandoment costs include

A

Failure of leases to pay rent and letting the lease lapse

112
Q

An identifiable event that can suffice to deduct abandoment costs include

A

A report showing that oil and gas in the formation is exhausted

113
Q

An identifiable event that can suffice to deduct abandoment costs include

A

A report that shows there is no oil and gas in the formation

114
Q

The formula for units of production depreciation is

A

Minerals sold over minerals est. recoverable at BOY times remaining basis in depreciable property

115
Q

If 15,200 units were sold during the year, 643k units were recoverable BOY, and $123k of depreciable basis

A

2907.62

116
Q

The deduction allowed for the extraction of minerals is called

A

Depletion

117
Q

The depletion deduction allows for a tax-free return of

A

Capital consumed in the production of income

118
Q

In order for the taxpayer to be entitled the depletion deduction, he must meet the following requirement

A

Economic interest, investment in a natural deposit, exhaustiable amount of minerals, actully or constructive sold

119
Q

The formula for units of production depletion is

A

Minerals sold over minerals est. recoverable at BOY times remaining basis in depreciable property

120
Q

The estimated recoverable reserves in the depletion computation includes

A

Proved, probable, and prospective reserves

121
Q

Each year, the depletable basis is

A

Decreased by the previous years depletion

122
Q

If both oil and gas are produced from the property, depletion is calculated on the

A

Major product and units of the lesser products are converted

123
Q

Barrel of Oil Equivalent eqauls

A

6mcfs = 1bbl of oil

124
Q

For tax purposes, both percentage and cost depletion are calucated each year and the correct deduction is the

A

Larger of the two

125
Q

Percentage depletion is available to

A

Independent oil producers and royalty owners

126
Q

Percentage depletion is not available to

A

Integrated oil companies

127
Q

What are integrated oil companies

A

Producers with retail and/or refining opportunities

128
Q

What type of depletion is only available to domestic oil and gas wells

A

Percentage depletion

129
Q

The depletion deduction is not limited to

A

Depleteable basis

130
Q

A taxpayer can deduct percentage depletion as long as a well

A

Produces

131
Q

The percentage depletion rate is what percentage of gross income for the property

A

15%

132
Q

The percentage depletion rate is limited to

A

100% of the taxable income from the property

133
Q

The percentage depletion rate is limieted to 65% of

A

The taxpayers total taxable income

134
Q

The percentage depletion deduction is limited to properties with sales of less than

A

1,000 BOE per day

135
Q

A well is considered a marginal or “stripper” well if it produces

A

Less than 15bbls per day

136
Q

A well is considered a marginal or “stripper” well the crude oil weighs

A

20 API or less (heavy)

137
Q

Marginal or stripper wlls can receive one percentage point of additional depletion for every dollar the price is below $20 up to

A

25% of gross income from the property

138
Q

When oil and gas property is disposed of at a gain, IDC or depletion previously deducted may need to be recapture as

A

Orindary income

139
Q

Properties placed in service before 1987 are subject to the recapture of ordinary income as the lesser of

A

IDC previously deducted or the gain realized

140
Q

Properties placed in service after 1986 are subject to the recapture of ordinary income as the lesser of

A

The IDC and depletion (but not % depletion in excess of the property’s basis) or the gain realized

141
Q

When a gain is recognized on the dipsotion of real or personal property for which depreciation has been deducted

A

Part or all of the deduction must be recaptured as ordinary income

142
Q

The amount of recapture for depreciation deductions is the lesser of

A

Prior depreciation subjec tto recapture or the gain realized

143
Q

All depreciation deductions claimed for what type of property are subject to recapture

A

Personal Property

144
Q

For corporations, real property that is subject to recapture is limited to the difference between

A

Straight-line and accelerated depreciation (straight-line depreciation is not subject to recapture)

145
Q

For individuals, real property that is subject to recpature is taxed at

A

25% (computed similarly to personal property recapture)

146
Q

The law provides that Alternative Minimum Tax will be computed by

A

Adding or subtracting adjustments and preference items to or from regular taxable income

147
Q

The Alternative Minimum Tax is the

A

Excess liablity over regular taxable amount

148
Q

The AMT tax rate only has two brackets at what percentage

A

26% and 28%

149
Q

The AMT tax rate is only assessed on AMT over the

A

Exemption amount

150
Q

How much credit is allowed for certain tertiary oil recovery projects

A

15%

151
Q

In order for the project to receive the enhanced oil recovery credit it must be reasonable expected to

A

Significantly increase the amount of crude oil recovered

152
Q

In order for the project to receive the enhanced oil recovery credit it must be located in

A

The United States

153
Q

In order for the project to receive the enhanced oil recovery credit the first inject must occur

A

In 1991 or later

154
Q

In order for the project ot receive the enhanced oil recovery credit the project must be

A

Certified by a petroleum engineer

155
Q

Costs that qualify for the enhanced oil recovery credit are

A

Tangible property, IDC, and tertiary injectant expenses

156
Q

The deductions for the enhanced oil recovery costs are reduced by the amount of the

A

Credit

157
Q

A nonrefundable credit called a Nonconventional Fuels Credit is allowed for the production and sale of

A

Energy from alternative sources

158
Q

The Nonconventional Fuels Credit is how much for each equivalent barrel of fuel sold during the year

A

$3 (adjusted for inflation)

159
Q

Oil from shale and tar sands is

A

Eligible for the Nonconventional Fuel Credit

160
Q

Gas from geo-pressired brine, Devonian shale, coals seams, and tight formations are

A

Eligible for the Nonconventional Fuel Credit

161
Q

Gas from biomass is

A

Eligible for the Nonconventional Fuel Credit

162
Q

Synthetic fuels produces from coal is

A

Eligible for the Nonconventional Fuel Credit

163
Q

The credit for tight formation gas is always

A

$3 not adjusted for inflation

164
Q

The requirements to qualify for the Nonconventional Fuel Credit

A

US production and production sold to an unrelated person

165
Q

When both the foreign country and the US are assessing income taxes, the US allows

A

A credit for the foreign taxes paid to avoid double taxation

166
Q

Each year the taxpayer can chose to treat qualifying foreign taxes as

A

A deduction or as a credit against US tax

167
Q

Sometimes what is called an income tax in a foeign country is actually

A

A payment for goods, services, or a right to extract minerals

168
Q

Sometimes what is called an income tax in a foeign country is actually

A

A royalty to a foreign government

169
Q

The At Risk Provision prohibits the deduction of a loss in the activity of oil and gas exploration if

A

The loss exceeds the total amount the taxpayer has at risk in the activity

170
Q

The amount At Risk (as used in the At Risk Provision) is the sum of

A

Cash and adjusted tax basis of the property contributed to the activity and personal indebiteness related to the activity

171
Q

The conduct of any trade or business in which the taxpayer does not materially participate throughout the year is called a

A

Passive Activity

172
Q

What does “materially participate throughout the year” mean in regards to passive activities

A

Involved in the business in a regular and continuous basis

173
Q

Passive losses can only be offset against

A

Other passive losses

174
Q

Unused passive losses can be

A

Carried forward indefinitely

175
Q

Unused passive losses can be dedcuted

A

In full on dispostion of the entire interest in the activity

176
Q

The income of loss for limited partners is considered

A

Passive Activity

177
Q

Passive losses from working interest activities cannot be offset against

A

Income from thosse non-operating interest (royalties)

178
Q

Income from non-opearting intersts are treated as

A

Portfolio income

179
Q

IRS Code Subchapter K governs

A

The taxation of partnerships

180
Q

Taxpayers who are particpants in joint venture or other unincorporated organizations may

A

Elect to be excluded from partnership treatment

181
Q

In order for a taxpayer for be excluded from partnership treatment the organization must be created for

A

Investment purposes only and for joint production, extraction, or use of property but not for selling production

182
Q

In order for participants in oil and gas joint ventures to qualify for the Subchapter Kelection they must own the property as

A

Co-owners

183
Q

In order for participants in oil and gas joint ventures to qualify for the Subchapter Kelection they must have the right to

A

Separately take production in-kind of dispose of their share of oil and gas produced

184
Q

In order for participants in oil and gas joint ventures to qualify for the Subchapter K election they may not

A

Jointly sell the oil and gas extract. Each participant has the right to chose.

185
Q

In order to make the election to be excluded from parntership treatment, the taxpayer must

A

Attached a statement to partnership return in the first year of operations

186
Q

In the absence of an election, it is deemed to have been made if it can be

A

Shown from facts and circumstances that is was the intent of the members to be excluded

187
Q

In order for the exclusion for partnership treatment to granted, all participants

A

Must agree to be excluded

188
Q

There is no need to file a partnership return if the participant

A

Has elected to be excluded from Subchapter K

189
Q

Working interest owners can elect different tax treatments on their own separate return if

A

The owner has elected to be excluded from Subchapter K

190
Q

In circumstances where owners might want to make special allocations of income and expense, the owner would

A

Want to be treated as a Subchapter K partnership

191
Q

Gas balancing in which each producer recognizes gross income based on his total sales from the property, including any takes

A

Cumulative Gas Balancing

192
Q

The type of gas balancing required by the IRS unless special persmisison is received is

A

Cumulative Gas Balancing

193
Q

Gas balancing in which each producer accounts for sales based on their respective ownership rights under the JOE is

A

Annual Gas Balancing

194
Q

In cumulative gas balancing, the overproducer reports income from their share of production plus

A

Any sales of gas from other working interest

195
Q

In cumulative gas balancing, a deduction is allowed

A

When a balancing payment is made to an underproducer

196
Q

In cumualtive gas balancing, an underproducer

A

Reports any payments as income

197
Q

In annual gas balancing, inbalancing must be eliminated

A

Annually through a balancing payment

198
Q

The following interests are what type of interests: Royalty, working , ORRI, and NPI

A

Economic Interests

199
Q

Economic interests may claim

A

Depletion

200
Q

What is the only type of interest allowed for the deduction of depletion

A

Economic interest

201
Q

For tax purposes, the term leasehold reflects the cost of acquisition that must be

A

Capitalized

202
Q

Purchase price, lease bonus, finders fees, commissions, legal fees, delay rentals, and G&G costs

A

Leasehold costs

203
Q

A taxpayer claims a half of a year’s depreciation for the first taxable year regardless of when then property was actually put into service

A

Half-year convention amortizaiton

204
Q

For tax years beginning before August 8, 2005, G&G costs are

A

Capitalized if they lead to an acquistion or otherwise deducted in the year occurred

205
Q

IRC SEC 167 came into affect

A

after August 8, 2005

206
Q

Tax years after August 8, 2005, amortize G&G costs over

A

24 months using half year convention

207
Q

Costs paid or incurred after May 17, 2006 and before December 20, 2007 by a “major integrated oil company”

A

Are amortized over 5 years

208
Q

Costs paid or incurred after December 19, 2007 and before December 20, 2007 by a “major integrated oil company”

A

Are amortized over 7 years

209
Q

A “major integrated oil company” is not eligible for

A

Percentage depletion

210
Q

A “major integrated oil company” produces more than

A

500,000bbls of crude oil per day

211
Q

A “major integrated oil company” has more than ________________ in gross receipts for the taxable year ending in 2005

A

$1billion

212
Q

IDC for tax purposes includes only costs incurred in drilling and competion to the point of placing

A

Valves on the wellhead (christmas tree) to control production

213
Q

Labor to install flow lines, separators, and storage tanks are

A

Not IDC

214
Q

Labor to install flow lines, separators, and storage tanks are

A

Capitalized with the cost of equipment

215
Q

Rig removal costs and location restoration, even though incurred after the christmas tree is placed on is

A

Still counted as IDC

216
Q

A taxpayer may elect to ______________ OR ___________________ IDC

A

Capitalized or deduct

217
Q

The election to capitalized or deduct IDC must be

A

Made in the first year IDC is incurred

218
Q

The act of ______________ expenses in the first year counts as an election, but most taypayers attach a statement to return

A

Deducting

219
Q

The election to _____________ is usually binding to all subsequent years

A

Capitalize

220
Q

Failing to deduct IDC is an election to

A

Capitalize

221
Q

Expenditures not related to drilling but connected to the installation of tangible equipment are allocated to the

A

Equipment account

222
Q

Expenditures not related to drilling but connected to the installation of tangible equipment are recovered through

A

Depreciation

223
Q

If the 1st year election is to deduct IDC currently, the taxpayer makes a subsequent annual election to

A

Capitalize oany or all of the IDC incurred in that year

224
Q

The part of the IDC that is allocated to be capitlalized is amoritized over __ months beginning in the month the costs were incurred

A

60 months

225
Q

Integrated oil and gas companies that have elected to deduct IDC may deduct only ______ % at the time IDC is incurreced

A

70%

226
Q

The remaining 30% not allowed to be deducted by integrated oil companies must be

A

Capitalized and amorized over 60 months beginning in the month incurred

227
Q

How many months must the remaining 30% of the IDC not allowed to be decucted by integrated oil companies be amoritized

A

60 months

228
Q

The government ruling describing items NOT included in IDC

A

Treas. Reg. Sec 1.612-4

229
Q

According to Treas. Reg. Sec 1.612-4, capitals items not included in IDC is property that is considered to have

A

Salvage value

230
Q

According to Treas. Reg. Sec 1.612-4, capitals items not included in IDC is actual materials used in the

A

Construction of a well and on the property

231
Q

According to Treas. Reg. Sec 1.612-4, capitals items not included in IDC is costs of

A

Drilling tools, pipe, casing, tubing, tanks, engines, boilers

232
Q

According to Treas. Reg. Sec 1.612-4, capitals items not included in IDC is any costs not

A

Used in the processes of drilling and completing a well such as structures used in the construction of storage or treatment facilities

233
Q

Rev. Ruling 70-414 futher explains the items that are

A

Excluded from IDC

234
Q

According to Rev. Ruling 70-414, expenditure incurred in installing production facilities are

A

Excluded from IDC

235
Q

A well is considered completed when casing, including the ___________, has been installed

A

Chrtistmas Tree

236
Q

Treas. Reg. 1.612-4c defines the cost of items that are not

A

IDC

237
Q

The development costs (drilling, testing) accociated with a dry hole should be

A

Deducted as dry hole costs

238
Q

Leasehold costs associated with a dry hole may be deductible depending on if the lease is found to be

A

Worthless

239
Q

Tax law governs that tangible drilling costs are the cost of equipment plus the physical cost of

A

Installation

240
Q

Tangible equipment costs are capitalized and recovered via IRS guidelines using a useful life of

A

7 years

241
Q

The Safe Harbor Election allows the taxpayer to

A

estimate probable or prospective reserves

242
Q

Once the Safe Harbor is elected, the company’s estimate of total recoverable units is equial

A

105% of proved reserves

243
Q

The Safe Harbor Electionis ___________________ in the first year

A

Non-revocable

244
Q

What is another name for percentage depletion

A

Statutory

245
Q

Allowable depletion is the _____________ of either cost or percentage depletion

A

Higher

246
Q

Independent oil producers and royalty owners are limited to a depletion deduction of only

A

65% of total (taxpayer) income

247
Q

The excess of 65% of total taxpayer income for the depletion deduction can

A

Be carried forward indefinitely

248
Q

Independent oil producers and royalty owners are limited to _____________ BOE per day

A

1,000

249
Q

Percentage depletion is not available to

A

Integrated oil companies

250
Q

Once the cost basis is zero, ____________ depletion is no longer available

A

Cost

251
Q

What type of depletion continues as long as the property produces

A

Percentage depletion

COPAS - APA EXAM (2 decks)

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