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Oil and Gas Industry Edition

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Description

IRS Tax Audit Manual for the Oil and Gas Industry

Provides information on basic operations and common terminology. Includes reference to royalty owners and an introduction to financial products.

TABLE OF CONTENTS

  • Index to Exhibits vii
  • Foreword ix
  • Chapter 1 Oil and Gas Industry Overview 1-1
    • General Description of the Industry 1-2
    • Mineral Interests . 1-2
    • Acquisition Through Mineral Lease 1-2
    • Acquisition in Fee 1-3
    • Property Overview 1-7
    • Types of Ownership Interest 1-8
    • Tract or Parcel 1-8
    • Separate Deposits 1-8
    • Unitization 1-8
    • Accounting Methods 1-9
    • Successful Efforts Method 1-9
    • Full Cost Method 1-11
    • Accounting Records 1-12
  • Chapter 2 Oil and Gas Industry Issues
    • Issues Related to an Oil and Gas Entity and Activity
    • Overview 2-1
    • Unproductive Issues 2-1
    • Productive Issues 2-1
    • Unique Issues 2-2
    • Uniform Capitalization Rules 2-4
    • Assistance in IRC Section 263A 2-5
    • General Issues [Non-Oil and Gas] 2-5
  • Chapter 3 Oil and Gas Audit Techniques
    • Examination of an Oil and Gas Entity and Activity 3-1
    • Engineering Referral 3-1
    • Initial Interview Questions 3-2
    • Initial Information Document Request 3-3
    • Accounting Methods 3-4
    • Property Definition 3-5
    • Unitization 3-7
    • Areas Typical of an Oil And Gas Entity 3-8
    • Gross Income 3-8
    • Lease Bonus 3-10
    • Delay Rentals 3-11
    • Royalty Income 3-11
    • Advance Royalties 3-11
    • Minimum Royalties 3-12
    • Shut in Royalties 3-12
    • Production Payments 3-12
    • Damages 3-13
    • Shooting Rights 3-13
    • Uniform Capitalization Rules –
    • IRC section 263A 3-16
    • Produced Property 3-16
    • Predevelopment Expenses 3-17
    • Interest Capitalization 3-18
    • Allocation of Indirect Expenses 3-18
    • Conclusion 3-19
    • Auditing Techniques 3-19
    • Leasehold Cost 3-20
    • Geological and Geophysical Costs 3-22
    • Abandonment Cost 3-25
    • Audit Techniques 3-27
    • Lease Operating Expense 3-30
    • Bad Debts (Joint Interest Owners) 3-32
    • Intangible Drilling Cost 3-34
    • Audit Techniques 3-37
    • Lease and Well Equipment 3-39
    • Depletion 3-40
    • Economic Interest 3-41
    • Cost Depletion 3-41
    • Units Sold 3-42
    • Adjusted Basis of Property 3-42
    • Cost Depletion on Wildcat Acreage 3-43
    • Percentage Depletion 3-44
    • Independent Producer 3-44
    • Transfers of Proven Properties 3-44
    • Gross Income from the Property 3-45
    • Net Income of the Property 3-47
    • Expenses of the Property 3-49
    • Overhead Allocation 3-49
    • Audit Techniques 3-50
    • Information Required to Compute
    • Depletion Allowance 3-50
    • Alternative Minimum Tax 3-52
    • Percentage Depletion 3-52
    • Intangible Drilling Costs 3-52
    • Alternative Tax Energy Preference Deduction 3-53
    • Qualified Exploratory Costs 3-53
    • Marginal Production 3-54
    • Phase Out of the Deduction 3-55
    • Audit Techniques 3-55
    • Alternative Tax Energy Preference Deduction 3-57
    • Self-Employment Income 3-57
    • Passive Activity Loss Limitations 3-58
    • Oil and Gas Activities 3-59
    • Portfolio Income 3-59
  • Chapter 4 Financial Products Potential Area of Concern Related to Oil and Gas 4-1
    • Energy Markets and the Participants 4-1
    • Cash Market 4-1
    • Forward Market 4-5
    • Futures Market 4-5
    • Options Contracts 4-8
    • Market Participants in Forward and
    • Futures Contracts 4-11
    • Commodity Notional Contracts 4-13
    • Commodity Notional Swap 4-13
    • Use of Commodity Notional Swap to Hedge Risk 4-13
  • Glossary G-1
    • Technical References
    • General Counsel Memorandums (GCM) and
    • Court Cases TR-1
    • Revenue Rulings TR-2
    • Assignments, Sales and Exchanges TR-2
    • Capital Expenditures TR-2
    • Definition of Property TR-4
    • Cost Depletion TR-4
    • Depletion, Gross Income, Net Income TR-4
    • Percentage Depletion TR-6
    • Geological and Geophysical Costs TR-6
    • Intangible Drilling and Development Cost TR-6
    • Nonconventional Fuel Credit TR-7
    • Nonrecourse Loan TR-7
    • Partnerships TR-8
    • Sharing Arrangements TR-8
    • Miscellaneous TR-8
Don’t forget – The IRS Tax Audit Manual for the Oil and Gas Industry is tax deductible as a business expense!