Structured Oil & Gas Leases
Tax Savings Strategy Helps Save You Money, Secure Your Future
Background
With domestic oil & gas exploration on the rise, landowners around the country are being approached by landmen representing oil & gas companies who want to lease their land and the rights to minerals they believe lie beneath the surface.
In addition to potential future royalties, these leases typically include a provision for a one-time up-front bonus payment paid as an incentive to the landowner to enter into a lease.
Up-front bonus payments, usually a “per acre” sum, can be substantial. Landowners can receive hundreds of thousands, even millions, of dollars even if the drilling comes up short and no gas or oil is ever discovered.
That’s the good news.
Enter Uncle Sam
Because the up-front bonus is paid in one year only, many landowners find they are taxed at the highest marginal tax brackets, upwards of 50%, for one year only.
There is a Better Alternative
By choosing, IN ADVANCE (that’s key), a Structured Oil & Gas Lease Bonus Option, landowners can lower their tax burden and earn pre-tax, deferred income accumulation designed to payout according to a schedule they select.
Revenue Ruling 68-606 permits cash method taxpayers (most of us) to defer their bonus payments provided their instalment bonus is not “transferable and readily saleable.”
Those familiar with Structured Settlements and Structured Sales understand that a properly crafted settlement, or in this case lease agreement, results in a contract that is not transferable or readily saleable.
Both sides must agree to the transaction and our firm prepares the requisite paperwork needed to conclude the matter properly.
For Further Information
This blog is simply designed to give you the highlights. We pride ourselves on our personalized approach to our business and welcome the opportunity to discuss this, or any related topic, in greater detail as needed. Just call or email us to let us know how we can help. Or visit:
If your law firm has a section dedicated to oil & gas leases, this can be a terrific value-added alternative to cash that costs your clients nothing. In fact, it saves them money.
