Question1. Larry Landowner and Wildcat Bill enter into an oil and gas lease… 1. Larry Landowner and Wildcat Bill enter into an oil and gas lease with Larry retaining a one-eighth royalty and Bill receiving the entire working interest. Is either Larry or Bill eligible to make an election to expense IDC?2. Assume the same facts as in Problem 1, but Bill, as sub lessor, assigns the entire working interest in the lease to Farmin Frank, retaining a one-sixteenth overriding royalty interest. Who is eligible to make an election to expense IDC?3. Does it make a difference in eligibility to expense IDC if Bill retains a net profits interest (entitling him to 50% of the net profits from the property) instead of the overriding royalty interest?4. Bill assigns the entire working interest acquired in Problem 1 above to Farmin Frank, subject to a $100,000 production payment (payable out of 25% of production), instead of an overriding royalty. (Ignore any interest issues that could arise.) Who can make an election to expense IDC on the property? See IRC section 636(b).5.Larry Landowner enters into an oil and gas lease with Wildcat Bill and Developer Dan, each securing a 50% working interest in the lease, with Larry retaining a one-eighth royalty interest. Are Bill and/or Dan eligible to make an election to expense IDC? What about Larry? Assume for this problem that the parties make an effective election under IRC section 761(a) to be excluded from tax partnership treatment under Subchapter K of the Code.6. Assume the same facts in Problem 5 above, but the parties do not elect to be excluded from tax partnership treatment under Subchapter K of the Code and thus form a tax partnership. Does this make a difference as to eligibility to make an election to expense IDC?LawSocial ScienceTax law ACCT 7330
