Deductibility of prepaid intangible drilling and development costs

Journal Article · Mon Mar 01 04:00:00 EST 1982 · Oil Gas Tax Q.; (United States)

OSTI ID:5645544

Klueger, R F

Participation in an oil and gas exploratory drilling partnership has become an increasingly popular shelter income. The key feature is the ability of the program to incur and expense intangible drilling and development costs (IDC) in the earliest possible year. For the investor who must shelter income in a given tax year the key becomes the ability to deduct IDC in the year of investment in the program, through prepaid IDC. Recent cases and rulings have cast doubt upon the ability of taxpayers to deduct prepaid IDC. Various revenue rulings were discussed. It was concluded that a taxpayer was probably safe if drilling is required to be completed within three months (Revenue Ruling 71-252) and the other requirements regarding explicit business purpose, identification of wells to be drilled, and the avoidance of the payment being deemed a mere deposit are met. (DP)

• Research Organization: Esperti, Elrod and Wills, Denver, CO
• OSTI ID: 5645544
• Journal Information: Oil Gas Tax Q.; (United States), Journal Name: Oil Gas Tax Q.; (United States) Vol. 30:3; ISSN OGTQD
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
020700* -- Petroleum-- Economics
Industrial
& Business Aspects
03 NATURAL GAS
030600 -- Natural Gas-- Economic
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
DRILLING
FINANCIAL INCENTIVES
INCOME
INDUSTRY
LAWS
NATIONAL ORGANIZATIONS
NATURAL GAS INDUSTRY
PETROLEUM INDUSTRY
TAX LAWS
TAXES
US DEPARTMENT OF TREASURY
US IRS
US ORGANIZATIONS