Tax Module Upload2 Flashcards
Tracs that geographically touch only at a corner
Adjacent land tracts
A method whereby each interest owner accounts for gas sales based on his relative ownership rights under the Joint Operating Agreement and his current share of gas produced from the reservoir each year.
Annual Gas Balancing Method
Gas balancing agreements that may require annual cash settlements for any imbalance.
Annual Gas Balancing Method
A separate noncontiguous area within a project area that, for tax purposes, has been identified in a G&G survey as having pecific geological features that warrant further analysis
Area of Interest
Created when one or more parties agree to pay a disproportionate share of the development expenses
Carried Interest
Tracts that geographically share a common border
Contigous Land Tracts
A method whereby each producer recognizes gross income based on his total sales of gas from the property including any sales of gas taken from another producers share of the reserves and over/under produce positions are settled at the end of the properties commercial life.
Cumulative Gas Balancing Method
A payment, made during the primary term of a lease, for additional time in which to utilized the land. It does not depend on oil or gas produced, does not exhaust substance of land, and resembles a bonus payment, which is an advance royalty
Delay Rental
Represents an interest in the mienral sin place. The interest owner may only look to its share of production proceeds for a return of capital
Economic interest
An interest that must exist in some form of legal relationship
Economic interest
Royalty interest, working interest, overridding royalty interest and net profits interest
Economic interest
Conversts all hydrocarbons to a single unit of measurement base on their equivalent energy content
Equivalent Barrelts
Under the standard energy conversion 6MCF of gas is equivalent to 1 barrel of oil
Equivalent Barrelts
A form of sharing arrangement under which the working interest owner assings all or part of his working interest to a secondary party in exchange for that party’s agreement ti drill a well
Farmout
The working interest owner in a farmout
Farmor
The secondary party agreeing to drill a well on the lease in a farmout
Farmee
An estate limited absolutely to a person and his/her heirs and assigns forever without limitation or condition
Fee simple interest
The owner is entitled to the entire property, with uncondition power of dipositon during his/her life, and descending to his/her heirs and legal representitives upon his death
Fee simple interest
Costs for processes which look for surface or subterranean indication of formations, faults or other geoplogical structs which are of a type in which experience has shown the possible of mineral deposits
Geological and Geophysical costs
A payment made by the lessee or sublessee to the lessor or sublessor as consideration for granting a lease
Lease bonus
The term commonly used to descrive all hydrocarbons and other natural resources.
Minerals
Entitles the owner to a portion of the net profits from oerpation of the property
Net profits interest
An interest that has no obligation to pay for development or production costs if the share of production attributable to this interest is not sufficient to pay those costs
Net profits interest
In a NPI, if not net profit exists the holder of the
Receives no payment
A royalty interest carved out of a working interest and is interest in oil and gas produced at te wellhead free of expenses
Overridding Royalty Interest
The durration of an ORRI is limited to the duration
of the working interest in which it was created
The conduct of any trade of business in which the taxpayer does not materially participate throughout the year
Passive
Entitles the holder to a specified percentage of production for a limited period of time, or unil a defined amount ofmoney has been received, or until a certain number of production units has been received
Production payment
At the time a production payment is created, it must have a projected life ______________________ than that of the operting interest from which it was created
Shorter
The initial term of the lease
Primary term
A general geographical area of exploration selected to yield data that will afford a basis for identifying specific geological features
Project area
Created under a mineral lease and is the right to share in a stated protion of the mineral production from the property, free of developing and producing cost
Royalty interest
The process of injecting water, gas, ect, into a producing formation as a means of increasing the drive and mechanism in order to product oil that would be otherwise unobtainable
Secondary recovery
Another name for secondary recovery
Tertiary recovery
The use of sophisticated techniques such as flooding the reservoir with steam to increase the production of oil or gas
Tertiary recovery
A single comprehensive set of rules in the tax code governing the capitalization of costs for acquiring, developing, producing, and holding properties
Uniform Capitalization Rules UCR
Held by the assignee of the lease and represents an interest in the minerals burded by the cost of exploration, development, and production
Working or operating interest
Ruling that state “pool-of-capital” doctrine does not apply when myltiple properties are involved. A taxable gain or loss occurs for the FMV of the earned acreage protion
Rev. Ruling 77-176
No consideration passes between the parties other than a contribuation, or assumption, of the obligation to develop
Pooling-of-capital
What ruling stated that after may 17, 2006 (major intergrated oil companies) costs paid or incurred for G&G costs are amortized over 5 years
IRC Sec. 167 (h)
What regulation describes items that are not considered IDC
Treas. Reg. Sec. 1.612-4c
According to Treas. Reg. Sec. 1.612-4c installing ___________ ___________ is not considered IDC
Production facilities
According to Treas. Reg. Sec. 1.612-4c ______________ cemented into place is not considered IDC
Casing
According to Treas. Reg. Sec. 1.612-4c ___________________ is not considered IDC
Pipeline from the mouth of a gas well to the first point of control
What ruling exludes items from IDC
Rev. Ruling 70-414
Accoridng to Rev. Ruling 70-414 expenditures for installing production facilities are
Excluded from IDC
A well is considered complete when the
Christmas tree has been installed
What revenue prodecure allowed for the Safeharbor election
Revenue Procedure 2004-19
The Safeharbor election allows for the taxpayer to estimate ________________ and ____________________ reserves
Probable and prospective
The companies estimate of total recoverable reserves is equal to what percentage of proved reserves
105%
What provision address abrupt year end increase in the at risk amount
Anti-abuse provision
What act gave releif to the AMT beginning in 1993
Energy policy act of 1992
What was replaced with the Energy Policy act of 1992
Excess percentage depletion preference
IDC deducted must be capitalized and amortized over 60months starting with the date paid
Adjusted current earnings (ACE)
What ruling offers credit for enhanced oil recovery
IRC Sec. 43
How much of credit is given as a result of the IRC Sec. 4.
15%
What section of the Tax Reform act of 1986 promulgated the Uniform Capitalization Rules
Section 263A
All of the depreciation deduction for what type of property are subject to recapture
Personal property
Real property subject to recapture is limited to te difference between straight line and accelerated depreciation for who
Corporations
Real property depreciation subject to recpature is taxed at 25% and computed similarly to personal property recapture
Individuals
To be entitled depletion deduction, the interest owner must possess which type of interest
Economic interest
Which interest type has a life longer than the working interest
Fee simple interest
Under US property law ______________ rights and ________________ rights are divisible
Surface and mineral
If a company owns a working interest and an ORRI interesest in a lease and acquires as additional WI and ORRI, in absense of an election with the IRS the company’s depletion schedule will show
One WI and two ORRI
Income from a sale or a taxable exchange could constitute a
Capital gain
A lease bonus is considered what type of income
Ordinary
A company transfers one-third of its working interest in a lease to another company for cash and uses the cash to pay employee Christmas bonuses
Sale
A company transfers one-third of its working interest in a lease to another company for cash and uses the cash to drill a well on the Cactus lease
Sharing arrangement
What rev. ruling states that “Each separable noncontigous portion of the original project area in which such a specific geological feature is identified is a separate ‘area of interest’
Rev. Ruling 77-188
What are the three phases of G&G costs
Project area, areas of interest, and selection of properties
Integrated oil companies are required to capitalized what percentage of their IDC even after making the election to expense IDC
30%
The 30% of costs that integrated oil companies are required to capitalized is deducted ratably over
60 months
All taxpayers must ___________________ foreign IDC and recover its costs either through depletion deductions or through straight-line amortization over __________ years
Capitalize, 10 years
Taxpayers who elect to deduc IDC in the current year may choose to
Capitalize all or a portion of the IDC incurred in that tax year
If the taxpayer has decided to capitalize his IDC, the regulations grant an option to either capitalize or expense the cost of
Dry holes
What petroleum industry costs has been specifially excluded from the UCR
Intangible drilling costs
Labor to plumb a tank battery is or is not IDC
Is not
The costs from drilling an injection well are
Accounted for in te same manner as producing wells
Abandonment results in a capital or orindary loss
Ordinary
