What is the definition of an Independent Producer re oil & gas and taxes? I can find the regulations re depletion and such that apply to independent producers and royalty holders. But, I looked on the IRS web site, the Master Tax Guide, K-1 instructions, AMT instructions, The Tax Book, and a dozen other places, and never found a definition of independent producer.
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As the taxpayer branches out from developing and operating the mineral interest to
refining and retailing the minerals extracted, the return becomes more complex. A
determination of whether the taxpayer is an independent producer or integrated oil
company must be made; as the tax treatment is quite different for each. An
independent producer, as defined by IRC section 613A(d), is a producer who does not
have more than $5 million in retail sales of oil and gas in a year or one who does not
refine more than 50,000 barrels of crude oil on any day during the year. A qualified
independent producer will be denied a percentage depletion deduction on production
volumes which exceed the average daily production of 1,000 barrels of crude oil. An
integrated oil company is a producer which is also either a retailer, which sells more
than $5 million of oil or gas in a year, or a refiner, which refines more than 50,000
barrels of oil on, any day during the year. However, it should be noted that the
classification of an independent producer can be denied, even when the producer does
not own a refinery, when an associated company refines more than 50,000 barrels in
any day of the year. This is especially true when some of the producer's oil or gas is
traced to the associated company's refinery, even through an exchange with a third
party. -
Thank you
Thank you, Okie. A colleague asked the question. We're up here in CT and get a few K-1s with oil & gas interests. But, my colleague has one from a general partner with a more complex situation than we usually see so far from oil rich land.Comment
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Hey, if I weren't involved with an audit of an independent producer, I would not have know the definition. This is a learn something new all the time business.Comment
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Truth
Ain't that the truth?! Brain can't rust too much with those gears spinning around all the time. Gears change direction more slowly now, though.Comment
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Independent producer
The above reply was more comprehensive from a tax perspective, but this is the basic difference:
An independent is one who is engaged in exploration and production, not in refining, operating service stations and other marketing in addition to arranging sales to oil and gas transmission lines or other transporters.Comment
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Thanks
Thanks. Seeing more and more investors in "energy" partnerships. Gotta learn more about this topic.Comment
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old post, new question...
I know this is an older post but I have a question about this topic. I have a new client who just faxed me some additional tax papers he forgot to send originally. One is for a 1099-MISC from Sundance Resources in TX showing in box 7, Non-employee compensation, and amount for $2480.07. This form is not the standard looking 1099 and it lists what I believe to be different oil related rigs/stations and the amount my client was paid for each (11 in all). I have the clients previous years return and he had a Schedule C for something he called Oil & Gas Exploration. I cannot get ahold of the client now and would like to make some progress on this being as we are running out of time....and quick.
Client had previously mentioned he had a business, but said he didn't have it anymore. Client and his wife are 70 and listed themselves as retired.
Can anyone give me any direction on what the procedure would be on this type of situation? I have a million questions for the client but will be lucky if I can get a hold of before Monday. Any thoughts would be greatly appreciated.
Thanks,
BeckyComment
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1099misc
If he got a 1099MISC it could be for right-of-way or something other than for a working interest or royalty interest. If he had a Working Interest he would have received joint interest billings and payment from either a pipeline or the operator of the producing properties. If he had a royalty interest it would have probably been reported as such on the 1099. If it had been a rental payment, it should have probably been reported as Rental instead of as "other income" or non-employee compensation.
If it is non-employee compensation, it should have been for some kind of contractual work he did.Comment
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more info.
Client said the 1099-MISC was for investment to drill an oil well. Some 25 other people all put money in for "oil exploration". He insists that he shouldn't have to pay self-employment tax on this income. Any other thoughts as to how I should proceed? I'm thinking I should file the Schedule C, report the income and then offset it by any expenses he had; which he said he has some and will fax them to me later today.
Thanks,
BeckyComment
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