Depletion on Royalties Received by Gift

[WhiteOleander]

I have read what I have been able to find. Is it correct that if a taxpayer receives oil royalties by having the rights gifted to them they cannot take depletion? Percentage or Cost?
My taxpayer says he has been told this but I cannot find anything about it.
Thanks

[Gretel]

This seems to support your statement. Look under: Who can claim depletion.

http://www.irs.gov/publications/p535/ch09.html#en_US_2010_publink1000209033

[WhiteOleander]

Thanks Gretel. I had read that. But, what does economic interest mean? Can a gift be an economic interest?

What does aquired by investment mean?

From Pub 535.......

If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. More than one person can have an economic interest in the same mineral deposit or timber.

You have an economic interest if both the following apply.

You have acquired by investment any interest in mineral deposits or standing timber.

You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment.

A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. A production payment carved out of, or retained on the sale of, mineral property is not an economic interest.

[Jiggers]

Can an estate take % depletion on oil & gas royalty on the 1041? All income was passed out to the heir before the end of the tax year. And pass that depletion through to the heir on the K-1?

Can an estate take % depletion on the gross working interest on oil & gas on the 1041 (Schedule C)? Lease Operating Expenses are deducted also on that Schedule C.

[Gretel]

Thanks Gretel. I had read that. But, what does economic interest mean? Can a gift be an economic interest?

What does aquired by investment mean?

I understand this to mean "money invested". There might be other meanings of the term investment that I am not aware of.