1. On January 1, 1988, Wildcat Bill purchased the entire working interest in an oil and...
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1. On January 1, 1988, Wildcat Bill purchased the entire working interest in an oil and gas property. For the past five years, Bill has developed and operated the property. As of January 1, 1992, Bill's adjusted basis in the property is $240,000. Assume that Bill has deducted $75,000 of IDC and $50,000 in depletion deductions with respect to the property (all computed using cost depletion). On January 1, 1992, Bill sells the entire working interest in the lease for $600,000 (its then fair market value). Does Bill have to consider recapture of any of the deductions taken for IDC or depletion in his tax calculations at the time of sale? 2. Assume the same facts as in Problem 1 above, except that Bill carves out an overriding royalty interest from his working interest and sells it for $100,000 (its fair market value). Assume Bill's basis in the overriding royalty interest is $40,000 and the IDC and depletion associated with the overriding interest is $20,833. Does gain on sale of a non-operating interest trigger recapture? See Treas. Reg. Sec. 1,1254-1(b)(2)(iv) (A)(2). If so, what is the amount of ordinary income recapture Bill must recognize given these facts? 1. On January 1, 1988, Wildcat Bill purchased the entire working interest in an oil and gas property. For the past five years, Bill has developed and operated the property. As of January 1, 1992, Bill's adjusted basis in the property is $240,000. Assume that Bill has deducted $75,000 of IDC and $50,000 in depletion deductions with respect to the property (all computed using cost depletion). On January 1, 1992, Bill sells the entire working interest in the lease for $600,000 (its then fair market value). Does Bill have to consider recapture of any of the deductions taken for IDC or depletion in his tax calculations at the time of sale? 2. Assume the same facts as in Problem 1 above, except that Bill carves out an overriding royalty interest from his working interest and sells it for $100,000 (its fair market value). Assume Bill's basis in the overriding royalty interest is $40,000 and the IDC and depletion associated with the overriding interest is $20,833. Does gain on sale of a non-operating interest trigger recapture? See Treas. Reg. Sec. 1,1254-1(b)(2)(iv) (A)(2). If so, what is the amount of ordinary income recapture Bill must recognize given these facts?
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Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
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