15% Depletion for Royalty (RI) and Working (WI) and SE TAX

[Edward]

Ref posts earlier this year by TAXXCPA 2/6/10 and 6/24 /10, and also by Bert73 on this subject. I received 1099-Misc with both RI & WI boxes completed. I'm assuming I can take the depletion on both of these interests? When I worked for H&R years ago, I recall taking the depletion in such situations. I had previously been receiving RI only, but then thru a peculiar situation I also acquired WI - one sibling couldn't be located when the estate was settled so the Montana Oil Co placed her RI earnings into a special account. Then in 2008 they discovered she had passed away. The accumulated amounts were then sent to the remaining sibblings with a portion classified as WI and
balance classified as RI. The Oil Co says they have legal authority to allocate in such fashion. We all are now paying Joint Billing Costs for repairs whenever the well goes down. Since we all acquired the WI in a way other than thru investing or material participation, I feel we should not have to pay the SE tax, correct? I can't seem to find anything in QF, The Tax Book nor the QF special tax situations book that would suggest otherwise. I was planning on placing the Net Profit from Sch C on line 21 of the 1040 with a statement indicating how we acquired the WI interest as explained above. I know time is running out with the filing deadline approaching real fast, but certainly do need
some help on the Depletion & SE tax question. Thanks to any comments.

[taxxcpa]

Depletion and SE tax

You can take 15% depletion on both Working Interest and Royalty Interests. Report the RI on Schedule E and the W.I. on Schedule C. There would be no SE tax on the RI.

If it were a partnership interest, and your client was a passive investor there would be no SE tax and there would be a K-1 rather than a 1099.

However most Working Interest ownerships are of a joint venture nature and to my knowledge, there is no exclusion from SE tax since it is reported on Schedule C.