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Tax Offerings for the Oil & Gas Industry
Few industries impact as many aspects of life as the energy industry. Yet despite the necessity of energy, the oil and gas industry faces many unique challenges and opportunities. In our work with leading oil and gas companies across the upstream, midstream, downstream, and oilfield services sectors, our clients consistently cite a number of common trends impacting their businesses from a tax perspective.
- Recent articles
- The Deloitte difference
- Common trends
- Meeting clients’ objectives
- Dudek v. Commissioner
- Considerations for Landowners
- Global oil & gas tax newsletter
- Deloitte's integrated approach
- Meet our leaders
- Related topics
Decreasing supply, fluctuating demand, uncertain regulations—today's oil and gas companies balance numerous challenges, nearly all with tax implications. Overseas exploration opens up risks and opportunities. Increased regulatory scrutiny raises the bar for compliance. Now more than ever, tax needs to be a part of every key decision.
Marginal well credit available for 2016
On September 12, 2017, the IRS issued Notice 2017-51 (the Notice), confirming availability of the marginal well credit (MWC) for natural gas production available for taxable years beginning in calendar year 2016. The MWC has a special 5-year credit carryback provision. The Notice allows taxpayers to file amended 2016 returns for MWCs already claimed or omitted, and the opportunity to comment on the Notice including the methodology for calculating the credit amount before November 16, 2017.
The return of enhanced oil recovery credits, marginal gas well credits, and other oil and gas tax considerations in today’s pricing environment
September 6, 2016
This article, originally published in TAXES—The Tax Magazine, examines oil and gas tax considerations in today’s pricing environment.
The Deloitte difference
Our Oil and Gas practice professionals serve clients in the upstream, downstream, midstream, and oilfield service sectors — ranging from large global enterprises to new start-up firms — providing services that help each client achieve their specific objectives and add value across each organization. The Deloitte Oil & Gas practice provides services to the top ten Oil & Gas companies on the Fortune 1000, and we provide tax services to more than 85 percent of the Fortune 500.
Deloitte is a leading tax advisor in the United States and internationally. Our tax professionals include field-experienced industry practitioners devoted to specific oil and gas segments and a deep bench of technical specialists across tax disciplines and jurisdictions. We can address your need for specialized tax knowledge and supplement your tax organization while understanding the details that are important to oil and gas companies. We can help you explore ways to reduce your tax exposure by helping you understand and manage critical tax issues. The dramatic changes currently occurring in the tax arena require companies to do more proactive planning to help maintain a competitive advantage.
We have an extremely deep bench of experienced oil and gas tax professionals in Houston, as well as throughout the United States and the international locations where our clients operate. This “bench” provides clients the comfort of knowing they will be served by professionals familiar with business of our clients and who have the flexibility to add or change resources to meet their circumstances.
- Global demand for energy continues to grow, especially in developing countries, as the industry continues to search for new sources of energy. Increasingly, oil and gas are found in challenging areas, such as deep water, arctic regions, and politically challenged regions of the world
- The headline for the industry has been the dramatic development of unconventional oil and gas in the United States. Unlocked by technological advancements, development of these resources continues to change the global landscape of oil and gas as well as transforming our energy supply landscape and the United States economy.
- A demand for capital to develop properties and to build the required midstream infrastructure due to recent rapid exploration success, which is being partially met by new sources of capital flowing into the industry from private equity and inbound investment from foreign national oil companies
- Increased M&A activity and joint ventures being formed to share risk in the development of the resource plays, as well as traditional consolidation of assets by the larger players in this space
- Increased activity in the Master Limited Partnership (MLP) IPO marketplace as a vehicle to analyze the public markets for capital in both the upstream and midstream segments of the industry
- Regulatory and legislative uncertainty both at the federal level and in states where nonconventional oil and gas production is occurring at a rapidly expanding pace, as well as enhanced needs for revenue by taxing authorities in these jurisdictions
- Increased pressure on companies to improve processes and leverage technology to satisfy their tax and financial reporting obligations faster, more accurately, and with less people can be a tough balancing act, doing so can unlock hidden value.
Meeting clients’ objectives
Our experienced tax professionals have deep industry tax experience helping our clients with their tax planning and compliance requirements. Examples include:
- Certain aspects of the M&A life cycle, including conducting structuring, tax due diligence or working toward day-one readiness so tax operations in both companies stay up and running
- Exploring potential opportunities for energy credits and incentives, including research credits in both U.S. and foreign jurisdictions.
- Supported by the specialists in our Washington National Tax office whom maintain ongoing dialog with IRS and SEC officials, understanding the tax impact of new environmental requirements, legislative developments, new tax legislation and regulations, and tax controversies.
- Advising MLPs broadly from a tax planning and compliance perspective. Our commitment to clients in this industry led Deloitte to develop its own partnership K-1 processing platform. Since we introduced our K-1 processing service model and technology tools in 2008, a rapidly growing number of publicly traded partnerships have switched to Deloitte.
- Deep experience in upstream oil and gas, including experience with reviewing the various industry aspects of depletion, depreciation and drilling costs to determine efficient approaches to use these tax deductions.
- Helping clients address increased state income tax burdens in states with significant unconventional oil and gas activity, like Texas, Ohio, Pennsylvania, West Virginia, and New York and take advantage of opportunities to manage their state tax burden.
- Addressing transactional tax (e.g., excise, sales and use) considerations relevant to structuring, transactional planning, and due diligence activities, as well as the impact of providing goods and services in new jurisdictions or offering new goods or services where companies currently operate
- Assisting clients in the design of processes and implementation of technology automation tools to facilitate their management of tax and financial reporting compliance obligations
Dudek v. Commissioner
T.C. Memo. 2013-272
A recently issued Tax Court memorandum opinion, Dudek v. Commissioner, T.C. Memo. 2013-272 (December 2013), addresses the tax treatment of a bonus payment received by landowners in connection with the signing of an oil and gas lease agreement. The court concluded that the lease bonus payment received by the taxpayers in this case is taxable as ordinary income and not capital gain and that the taxpayers were not entitled to a depletion deduction.
While the analysis of the court was not novel or surprising, the case does serve as a reminder of the basic tax rules surrounding the receipt of these payments by landowners. In light of the proliferation of domestic oil and gas leasing activity in recent years, this topic is of increasing relevance to many taxpayers that may not historically have received these types of payments.
Considerations for Landowners
Oil and Gas Tax and Wealth Planning Considerations for Landowners
Recent advances in new drilling technology are driving unprecedented growth in U.S. oil and natural gas exploration and production and a re-domestication of the oil and gas industry. As the result of recent activity in new plays in shale gas, many landowners have found themselves with property and mineral rights that have increased significantly in value and have become a significant source of income.
Landowners that have come into wealth as a result of the shale boom face significant income tax and wealth planning considerations. These range from income-tax planning considerations applicable to high-income taxpayers with significant investment income to more distinct, industry-specific taxation matters that apply to certain mineral interest holders and the payments they may receive in conjunction with the sale or lease of their mineral rights.
Most of this article pertains to specific income tax and estate tax planning considerations relevant to oil and gas mineral rights holders. To appropriately understand the complexity of this area and some of the leading tax considerations, however, a basic background understanding of the integral terminology and industry practices surrounding the ownership, transfer and development of oil and gas properties is necessary. As such, this article provides a high-level overview of some of these particular concepts as well.
Deloitte’s integrated approach
Deloitte’s integrated approach brings added value to our clients
Collaboration with other Deloitte subsidiaries allows our practitioners to provide an integrated approach to the delivery of professional services. Not only can we provide technology and operational process insights and guidance, we can also bring knowledge of valuation and other financial accounting issues. When needed, we leverage the broader resources of member firms of DTTL and their affiliates around the world to address our clients’ international circumstances.
Our strengths include:
- A solid and sustained track record in tax advisory services to the oil and gas industry
- National and local teams of oil and gas industry veterans dedicated to our clients in the industry
- The deep resources of one of the largest tax practices in the United States, with recognized presence in Washington, DC, and our Center of Excellence in Houston, Texas
- Tax services that range from general tax compliance support to tax technical niche services
As an organization whose practitioners have specialized experience in both tax and the oil and gas industry, our commitment to understand the issues our oil and gas clients face is steadfast. Our practitioners’ oil and gas industry major is a benefit to Deloitte as well as to our clients. This, coupled with our technical tax knowledge and technological platforms, makes Deloitte a valuable resource to our clients.