data-entry examples for oil and gas activities:...

Data-Entry Examples for Oil and Gas Activities: UltraTax/1040 TL 25617 Copyright 1991 – 2012 by Thomson Reuters. All rights reserved.

DATA-ENTRY EXAMPLES FOR OIL AND GAS ACTIVITIES UltraTax/1040 Introduction ................................................................................................................................................... 2 Example 1 — Royalty income ....................................................................................................................... 2

Results .................................................................................................................................................... 3 Example 2 — Oil and gas working interest ................................................................................................... 3

Results .................................................................................................................................................... 3 Example 3 — Oil and gas information from pass-through entities................................................................ 4

Results .................................................................................................................................................... 4 Example 4 — Percentage depletion limitation .............................................................................................. 4

Results .................................................................................................................................................... 5 Example 5 — Alternative minimum tax preferences ..................................................................................... 5

Results .................................................................................................................................................... 5 Example 6 — Option to include depletion on Schedule E, Page 1 ............................................................... 6

Results .................................................................................................................................................... 6 Figure 1: Example 1 — Screen Rent ............................................................................................................ 7 Figure 2: Example 1 — Screen OGCost ....................................................................................................... 8 Figure 3: Example 1 — Screen OGWell ....................................................................................................... 9 Figure 4: Example 1 — Oil/Gas Well Schedule .......................................................................................... 10 Figure 5: Example 1 — Federal Statements ............................................................................................... 11 Figure 6: Example 2 — Screen C ............................................................................................................... 12 Figure 7: Example 2 — Screen OGCost ..................................................................................................... 13 Figure 8: Example 2 — Screen OGWell, Unit 1 .......................................................................................... 14 Figure 9: Example 2 — Screen OGWell, Unit 2 .......................................................................................... 15 Figure 10: Example 2 — Oil/Gas Well Schedule ........................................................................................ 16 Figure 11: Example 2 — Oil/Gas Well Schedule ........................................................................................ 17 Figure 12: Example 2 — 65% Taxable Income Limitation for Percentage Depletion ................................. 18 Figure 13: Example 2 — Schedule C, Page 1 ............................................................................................ 19 Figure 14: Example 2 — Schedule C, Page 2 ............................................................................................ 20 Figure 15: Example 3 — Screen K1 ........................................................................................................... 21 Figure 16: Example 3 — Screen K1-3 ........................................................................................................ 22 Figure 17: Example 3 — Screen OGCost ................................................................................................... 23 Figure 18: Example 3 — Screen OGWell ................................................................................................... 24 Figure 19: Example 3 — Oil/Gas Well Schedule ........................................................................................ 25 Figure 20: Example 3 — 65% Taxable Income Limitation for Percentage Depletion ................................. 26 Figure 21: Example 3 — Schedule E, Page 2 ............................................................................................ 27 Figure 22: Example 3 — K-1 Reconciliation Worksheet ............................................................................. 28 Figure 23: Example 4 — Screen Rent ........................................................................................................ 29

TL 25617 Data-Entry Examples for Oil and Gas Activities: UltraTax/1040 Copyright 1991 – 2012 by Thomson Reuters. All rights reserved.

Figure 24: Example 4 — Screen OGCost ................................................................................................... 30 Figure 25: Example 4 — Screen OGWell ................................................................................................... 31 Figure 26: Example 4 — Oil/Gas Well Schedule ........................................................................................ 32 Figure 27: Example 4 — 65% Taxable Income Limitation for Percentage Depletion ................................. 33 Figure 28: Example 4 — Federal Depletion Report .................................................................................... 34 Figure 29: Example 5 — Screen C ............................................................................................................. 35 Figure 30: Example 5 — Screen OGCost ................................................................................................... 36 Figure 31: Example 5 — Screen OGWell, Well 2 ....................................................................................... 37 Figure 32: Example 5 — Screen OGWell, Well 3 ....................................................................................... 38 Figure 33: Example 5 — Oil/Gas Well Schedule ........................................................................................ 39 Figure 34: Example 5 — Oil/Gas Well Schedule ........................................................................................ 40 Figure 35: Example 5 — 65% Taxable Income Limitation for Percentage Depletion ................................. 41 Figure 36: Example 5 — Schedule C, Page 1 ............................................................................................ 42 Figure 37: Example 5 — Schedule C, Page 2 ............................................................................................ 43 Figure 38: Example 5 — Form 6251 ........................................................................................................... 44 Figure 39: Example 5 — AMT Excess Preference IDC Report .................................................................. 45 Figure 40: Example 6 — Screen K1 ........................................................................................................... 46 Figure 41: Example 6 — Screen K1-3 ........................................................................................................ 47 Figure 42: Example 6 — Screen OGCost ................................................................................................... 48 Figure 43: Example 6 — Screen OGWell ................................................................................................... 49 Figure 44: Example 6 — Oil/Gas Well Schedule ........................................................................................ 50 Figure 45: Example 6 — Schedule E, Page 1 ............................................................................................ 51 Figure 46: Example 6 — Schedule E, Page 2 ............................................................................................ 52

Introduction This document contains examples of several different types of oil and gas activities. These examples detail common scenarios and demonstrate which data entry screens and fields are required for UltraTax CS® to calculate and limit percentage depletion, tax preferences for percentage depletion, and intangible drilling costs. These examples also demonstrate the differences required for oil and gas data entry for pass-through entities.

Note: These examples show the data entry for oil and gas information using the UltraTax/Oil & Gas module, which is available through a separate license.

Example 1 — Royalty income In this example, John Jones has a royalty interest in a producing well and receives Form 1099-MISC from XYZ Oil Company showing gross royalties of $15,000 and production taxes of $675.

1. Click the Rent & Royalty folder, and click the Rent tab.

2. In Screen Rent, enter your information in the Property description field (Figure 1).


3. Click the OGCost tab.

4. Enter information for at least one cost center in Screen OGCost (Figure 2).

5. Click the OGWell tab.

6. Assign a cost center to the well by selecting a code from the drop-down list for the Cost center # field (Figure 3).

Note: You must assign a cost center in Screen OGCost even if there are no costs to be allocated among wells.

7. Assign a unique number to the well by entering a number in the Well/Lease # field. (See Figure 3.)

8. Enter the information provided with Form 1099-Misc (Figure 3).

Results UltraTax CS completes and prints an Oil/Gas Well Schedule (Figure 4) and a federal statement titled “65% Taxable Income Limitation for Percentage Depletion” (Figure 5).

Example 2 — Oil and gas working interest In this example, John Baker is the operator of an oil and gas working interest. The oil and gas information is entered in Screens OGCost and OGWell, which are located in the Business folder.

1. Click the Business folder, and click the C tab.

2. Enter the business’s general information in Screen C (Figure 6).

3. Click Screen OGCost and enter the cost center information (Figure 7).


4. Enter the taxpayer’s oil and gas well information in Screen OGWell (Figures 8 and 9).

Results UltraTax CS completes and prints Oil/Gas Well Schedules (see Figures 10 and 11) and a federal

statement titled “65% Taxable Income Limitation for Percentage Depletion” (Figure 12). The Old Producing Well (Figure 10) has leasehold costs that are fully depleted but continues to calculate percentage depletion. The New Well (Figure 11) calculates both cost and percentage depletion and determines which is more beneficial.

UltraTax CS completes and prints Schedule C (Figure 13) for the oil and gas working interest and deducts the allowable depletion on Schedule C, line 12. Other oil and gas items (i.e., intangible drilling costs and lease operating expenses) are reported on Schedule C, Part V – Other Expenses (Figure 14).


Example 3 — Oil and gas information from pass-through entities In this example, Cindy Anderson received Schedule K-1 showing oil and gas information. In addition to Schedule K-1, the pass-through entity also provided detailed oil and gas information as supplemental information.

1. Click the K1 1065, 1120S folder, and click the K1 tab.

2. Enter the information from the Schedule K-1 in Screens K1 and K1-3 (Figures 15 and 16).

3. Click the OGCost tab and enter the cost center information (Figure 17).


4. Enter the taxpayer’s oil and gas well information in Screen OGWell (Figure 18).

Note: The Oil/Gas well net income field in the Percentage Depletion section of Screen OGWell is unique to pass-through entities. Make an entry in this field if applicable.

Results UltraTax CS completes and prints an Oil/Gas Well Schedule (Figure 19) and a federal statement titled

“65% Taxable Income Limitation for Percentage Depletion” (Figure 20).

UltraTax CS completes and prints Schedule E, Page 2 (Figure 21) and the K-1 Reconciliation worksheet which shows the allowable depletion for the entity (Figure 22).

Example 4 — Percentage depletion limitation In this example, James Johnson has a royalty interest and receives Form 1099-MISC from XYZ Oil Company showing gross royalties of $30,000 and production taxes of $1,425. Mr. Johnson is a farmer and has incurred a loss in his farming operation during the current year. This example illustrates the impact of the loss on the amount of percentage depletion deductible in the current year.

1. Click the Rent & Royalty folder, and click the Rent tab.

2. In Screen Rent, enter your information in the Property description field (Figure 23).

3. Click the OGCost tab.

4. Enter information for at least one cost center in Screen OGCost (Figure 24).


5. Click the OGWell tab.


6. Assign a cost center to the well by choosing a code from the drop-down list for the Cost center # field (Figure 25).

7. Assign a unique number to the well by entering a number in the Well/Lease # field (Figure 25).

8. Enter the information provided with Form 1099-Misc (Figure 25).

Results UltraTax CS completes and prints an Oil/Gas Well Schedule (Figure 26) and a federal statement titled

“65% Taxable Income Limitation for Percentage Depletion” (Figure 27).

UltraTax CS completes and prints a federal statement titled “Federal Depletion Report” showing the disallowed depletion, the allowable depletion, and the depletion available for carryover to the following year (Figure 28).

Example 5 — Alternative minimum tax preferences In this example, Mike Miller is the operator of an oil and gas working interest. The oil and gas information is entered in Screens OGCost and OGWell, which are located in the Business folder.

1. Click the Business folder, and click the C tab.

2. Enter the business’s general information in Screen C (Figure 29).

3. Click Screen OGCost and enter the cost center information (Figure 30).


4. Enter the taxpayer’s oil and gas well information in Screens OGWell (Figures 31 and 32).

Results UltraTax CS completes and prints Oil/Gas Well Schedules (Figures 33 and 34) and a federal

statement titled “65% Taxable Income Limitation for Percentage Depletion” (Figure 35). The Old Producing Well (Figure 33) has Leasehold costs that are fully depleted but continues to calculate percentage depletion. The New Well (Figure 34) calculates both cost and percentage depletion and determines which is more beneficial.

UltraTax CS completes and prints Schedule C for the oil and gas working interest deducting the allowable depletion on Schedule C, line 12. Other oil and gas items (i.e., intangible drilling costs and lease operating expenses) are reported on Schedule C, Part V – Other Expenses (Figures 36 and 37).

UltraTax CS completes and prints Form 6251 and reports the excess intangible drilling costs on line 25 (Figure 38). The intangible drilling costs preference is calculated on the federal statement titled “AMT Excess Preference IDC Report” (Figure 39).


Example 6 — Option to include depletion on Schedule E, Page 1 In this example, Gary Browning received Schedule K-1 income from a partnership that is a passive activity that also includes royalty income on line 17D. UltraTax CS reports the depletion on Schedule E, Page 2 unless the Include depletion on Schedule E, page 1 (royalties) field in Screen K1-3 is marked.

1. Click the K1 1065,1120S folder, and click the K1 tab.

2. Enter the information from the Schedule K-1 in Screens K1 and K1-3 (Figures 40 and 41).

3. Click the OGCost tab and enter the cost center information (Figure 42).


4. Enter the taxpayer’s oil and gas well information in Screen OGWell (Figure 43).

Results UltraTax CS completes and prints an Oil/Gas Well Schedule (Figure 44).

UltraTax CS completes and prints Schedule E, Page 1 (Figure 45) instead of reporting the depletion on Schedule E, Page 2 (Figure 46).


Figure 1: Example 1 — Screen Rent


Figure 2: Example 1 — Screen OGCost


Figure 3: Example 1 — Screen OGWell


Figure 4: Example 1 — Oil/Gas Well Schedule


Figure 5: Example 1 — Federal Statements


Figure 6: Example 2 — Screen C


Figure 8: Example 2 — Screen OGWell, Unit 1


Figure 9: Example 2 — Screen OGWell, Unit 2


Figure 12: Example 2 — 65% Taxable Income Limitation for Percentage Depletion


Figure 13: Example 2 — Schedule C, Page 1


Figure 15: Example 3 — Screen K1


Figure 16: Example 3 — Screen K1-3


Figure 21: Example 3 — Schedule E, Page 2


Figure 22: Example 3 — K-1 Reconciliation Worksheet


Figure 23: Example 4 — Screen Rent


Figure 28: Example 4 — Federal Depletion Report


Figure 29: Example 5 — Screen C


Figure 31: Example 5 — Screen OGWell, Well 2


Figure 32: Example 5 — Screen OGWell, Well 3


Figure 38: Example 5 — Form 6251


Figure 39: Example 5 — AMT Excess Preference IDC Report


Figure 40: Example 6 — Screen K1


Figure 41: Example 6 — Screen K1-3

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