If the production from the taxpayer's properties exceed 365,000 barrels (1000 barrel per day), then the "depletable oil quantity" will apply.
Oil and gas should not be separated for each property.
Does the adjustment have tax significance or would it be a mere "rollover? The IRC defines "depletable oil quantity" in terms of barrels per day.
Have seismic survey projects really been abandoned without acquiring leases? (Some lessors, such as state or Federal government, put selected lands up for lease each year and hold other lands to put up for future years.)Consider the effect of an adjustment. (The greater of cost depletion or percentage depletion is allowable.) See IRC sections 613(a) and 613A(d)(1).
If transactions as described in (a) and (b) are found, has the taxpayer handled them correctly? We have, therefore, expressed the amount of oil subject to percentage depletion under IRC 613A(c) in barrels per tax period. Spot check price per barrel by dividing gross income by barrels per lease or property.
The ,000 option cost, the ,000 geological and geophysical expenditures, and the ,000 bonus should be capitalized as leasehold costs of the 2,500 acres of land selected. Is the taxpayer a refiner or retailer [IRC 613A(d)(2) or (4)]? The tentative percentage depletion determined in Step 1 above may be subject to the 65 percent of the taxpayer's taxable income limitation of IRC 613A(d)(1).
Interest expense paid on money borrowed for investment (equipment, IDC, leasehold, etc.) is a direct expense of those properties and should be allocated to them 100 percent.
If the taxpayer operates his/her properties in conjunction with properties owned by others and charges a fee for services, the fee is not a credit to his/her operating expenses or overhead account; it is an income item.
Prior to the expiration of the first 6-month period, Oil Co A selected 2,500 acres under the lease which they paid ,000 bonus. Are any of the properties marginal oil or gas production properties held by independent producers or royalty owners Have overhead expenses been allocated to the properties for percentage depletion purposes?