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How To File 2012 Tax Return In 2014

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How To File 2012 Tax Return In 2014

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Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.

Make sure you are eligible

Before we can consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.

Submit your offer

You'll find step-by-step instructions and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF).  Your completed offer package will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s) - individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
  • $186 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.

Select a payment option

Your initial payment will vary based on your offer and the payment option you choose:

  • Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
  • Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.

If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.

Understand the process

While your offer is being evaluated:

  • Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are suspended;
  • The legal assessment and collection period is extended;
  • Make all required payments associated with your offer;
  • You are not required to make payments on an existing installment agreement; and
  • Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
If your offer is accepted If your offer is rejected
  • You must meet all the Offer Terms listed in Section 8 of Form 656, including filing all required tax returns and making all payments;
  • Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
  • Federal tax liens are not released until your offer terms are satisfied; and
  • Certain offer information is available for public review at designated IRS offices.
 
  • You may appeal a rejection within 30 days using Request for Appeal of Offer in Compromise, Form 13711 (PDF).

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Find all you need
to consider and make an offer in Form 656-B, Offer in Compromise Booklet (PDF)

Doubt as to Liability
If you believe there is verifiable doubt that you owe part or all of your tax debt, use Form 656-L, Offer in Compromise Doubt as to Liability (PDF)

Get Help

Pub. 594: IRS Collection Process
Explains the actions IRS may take to recover taxes owed. Download Pub. 594 (PDF)

Page Last Reviewed or Updated: 04-Feb-2014

The How To File 2012 Tax Return In 2014

How to file 2012 tax return in 2014 9. How to file 2012 tax return in 2014   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. How to file 2012 tax return in 2014 Depletion unit. How to file 2012 tax return in 2014 Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. How to file 2012 tax return in 2014 The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. How to file 2012 tax return in 2014 There are two ways of figuring depletion: cost depletion and percentage depletion. How to file 2012 tax return in 2014 For mineral property, you generally must use the method that gives you the larger deduction. How to file 2012 tax return in 2014 For standing timber, you must use cost depletion. How to file 2012 tax return in 2014 Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. How to file 2012 tax return in 2014 More than one person can have an economic interest in the same mineral deposit or timber. How to file 2012 tax return in 2014 In the case of leased property, the depletion deduction is divided between the lessor and the lessee. How to file 2012 tax return in 2014 You have an economic interest if both the following apply. How to file 2012 tax return in 2014 You have acquired by investment any interest in mineral deposits or standing timber. How to file 2012 tax return in 2014 You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. How to file 2012 tax return in 2014 A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. How to file 2012 tax return in 2014 A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. How to file 2012 tax return in 2014 Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. How to file 2012 tax return in 2014 Basis adjustment for depletion. How to file 2012 tax return in 2014   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. How to file 2012 tax return in 2014 Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). How to file 2012 tax return in 2014 For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. How to file 2012 tax return in 2014 You can treat two or more separate interests as one property or as separate properties. How to file 2012 tax return in 2014 See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. How to file 2012 tax return in 2014 There are two ways of figuring depletion on mineral property. How to file 2012 tax return in 2014 Cost depletion. How to file 2012 tax return in 2014 Percentage depletion. How to file 2012 tax return in 2014 Generally, you must use the method that gives you the larger deduction. How to file 2012 tax return in 2014 However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. How to file 2012 tax return in 2014 See Oil and Gas Wells , later. How to file 2012 tax return in 2014 Cost Depletion To figure cost depletion you must first determine the following. How to file 2012 tax return in 2014 The property's basis for depletion. How to file 2012 tax return in 2014 The total recoverable units of mineral in the property's natural deposit. How to file 2012 tax return in 2014 The number of units of mineral sold during the tax year. How to file 2012 tax return in 2014 Basis for depletion. How to file 2012 tax return in 2014   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. How to file 2012 tax return in 2014 Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. How to file 2012 tax return in 2014 The residual value of land and improvements at the end of operations. How to file 2012 tax return in 2014 The cost or value of land acquired for purposes other than mineral production. How to file 2012 tax return in 2014 Adjusted basis. How to file 2012 tax return in 2014   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. How to file 2012 tax return in 2014 Your adjusted basis can never be less than zero. How to file 2012 tax return in 2014 See Publication 551, Basis of Assets, for more information on adjusted basis. How to file 2012 tax return in 2014 Total recoverable units. How to file 2012 tax return in 2014   The total recoverable units is the sum of the following. How to file 2012 tax return in 2014 The number of units of mineral remaining at the end of the year (including units recovered but not sold). How to file 2012 tax return in 2014 The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). How to file 2012 tax return in 2014   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. How to file 2012 tax return in 2014 You must include ores and minerals that are developed, in sight, blocked out, or assured. How to file 2012 tax return in 2014 You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. How to file 2012 tax return in 2014 But see Elective safe harbor for owners of oil and gas property , later. How to file 2012 tax return in 2014 Number of units sold. How to file 2012 tax return in 2014   You determine the number of units sold during the tax year based on your method of accounting. How to file 2012 tax return in 2014 Use the following table to make this determination. How to file 2012 tax return in 2014    IF you  use . How to file 2012 tax return in 2014 . How to file 2012 tax return in 2014 . How to file 2012 tax return in 2014 THEN the units sold during the year are . How to file 2012 tax return in 2014 . How to file 2012 tax return in 2014 . How to file 2012 tax return in 2014 The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). How to file 2012 tax return in 2014 An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. How to file 2012 tax return in 2014   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. How to file 2012 tax return in 2014 Figuring the cost depletion deduction. How to file 2012 tax return in 2014   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. How to file 2012 tax return in 2014 Step Action Result 1 Divide your property's basis for depletion by total recoverable units. How to file 2012 tax return in 2014 Rate per unit. How to file 2012 tax return in 2014 2 Multiply the rate per unit by units sold during the tax year. How to file 2012 tax return in 2014 Cost depletion deduction. How to file 2012 tax return in 2014 You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. How to file 2012 tax return in 2014 Elective safe harbor for owners of oil and gas property. How to file 2012 tax return in 2014   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. How to file 2012 tax return in 2014 If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). How to file 2012 tax return in 2014 For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. How to file 2012 tax return in 2014 irs. How to file 2012 tax return in 2014 gov/pub/irs-irbs/irb04-10. How to file 2012 tax return in 2014 pdf. How to file 2012 tax return in 2014   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. How to file 2012 tax return in 2014 The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. How to file 2012 tax return in 2014 The election, if made, is effective for the tax year in which it is made and all later years. How to file 2012 tax return in 2014 It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. How to file 2012 tax return in 2014 Once revoked, it cannot be re-elected for the next 5 years. How to file 2012 tax return in 2014 Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. How to file 2012 tax return in 2014 The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . How to file 2012 tax return in 2014 Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . How to file 2012 tax return in 2014 Gross income. How to file 2012 tax return in 2014   When figuring percentage depletion, subtract from your gross income from the property the following amounts. How to file 2012 tax return in 2014 Any rents or royalties you paid or incurred for the property. How to file 2012 tax return in 2014 The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. How to file 2012 tax return in 2014 A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. How to file 2012 tax return in 2014   Use the following fraction to figure the part of the bonus you must subtract. How to file 2012 tax return in 2014 No. How to file 2012 tax return in 2014 of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. How to file 2012 tax return in 2014 For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. How to file 2012 tax return in 2014 Taxable income limit. How to file 2012 tax return in 2014   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. How to file 2012 tax return in 2014   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. How to file 2012 tax return in 2014 These deductible items include, but are not limited to, the following. How to file 2012 tax return in 2014 Operating expenses. How to file 2012 tax return in 2014 Certain selling expenses. How to file 2012 tax return in 2014 Administrative and financial overhead. How to file 2012 tax return in 2014 Depreciation. How to file 2012 tax return in 2014 Intangible drilling and development costs. How to file 2012 tax return in 2014 Exploration and development expenditures. How to file 2012 tax return in 2014 Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. How to file 2012 tax return in 2014 Losses sustained. How to file 2012 tax return in 2014   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. How to file 2012 tax return in 2014 Do not deduct any net operating loss deduction from the gross income from the property. How to file 2012 tax return in 2014 Corporations do not deduct charitable contributions from the gross income from the property. How to file 2012 tax return in 2014 If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. How to file 2012 tax return in 2014 See section 1. How to file 2012 tax return in 2014 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. How to file 2012 tax return in 2014 Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. How to file 2012 tax return in 2014 You are either an independent producer or a royalty owner. How to file 2012 tax return in 2014 The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. How to file 2012 tax return in 2014 If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. How to file 2012 tax return in 2014 For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. How to file 2012 tax return in 2014 Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. How to file 2012 tax return in 2014 However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. How to file 2012 tax return in 2014 For information on figuring the deduction, see Figuring percentage depletion , later. How to file 2012 tax return in 2014 Refiners who cannot claim percentage depletion. How to file 2012 tax return in 2014   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. How to file 2012 tax return in 2014 The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. How to file 2012 tax return in 2014 Related person. How to file 2012 tax return in 2014   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. How to file 2012 tax return in 2014 For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. How to file 2012 tax return in 2014 A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. How to file 2012 tax return in 2014 For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. How to file 2012 tax return in 2014 The value of the outstanding stock of a corporation. How to file 2012 tax return in 2014 The interest in the profits or capital of a partnership. How to file 2012 tax return in 2014 The beneficial interests in an estate or trust. How to file 2012 tax return in 2014 Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. How to file 2012 tax return in 2014 Retailers who cannot claim percentage depletion. How to file 2012 tax return in 2014   You cannot claim percentage depletion if both the following apply. How to file 2012 tax return in 2014 You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. How to file 2012 tax return in 2014 Through a retail outlet operated by you or a related person. How to file 2012 tax return in 2014 To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. How to file 2012 tax return in 2014 To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. How to file 2012 tax return in 2014 The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. How to file 2012 tax return in 2014   For the purpose of determining if this rule applies, do not count the following. How to file 2012 tax return in 2014 Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. How to file 2012 tax return in 2014 Bulk sales of aviation fuels to the Department of Defense. How to file 2012 tax return in 2014 Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. How to file 2012 tax return in 2014 Related person. How to file 2012 tax return in 2014   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. How to file 2012 tax return in 2014 Sales through a related person. How to file 2012 tax return in 2014   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. How to file 2012 tax return in 2014   You are not considered to be selling through a related person who is a retailer if all the following apply. How to file 2012 tax return in 2014 You do not have a significant ownership interest in the retailer. How to file 2012 tax return in 2014 You sell your production to persons who are not related to either you or the retailer. How to file 2012 tax return in 2014 The retailer does not buy oil or natural gas from your customers or persons related to your customers. How to file 2012 tax return in 2014 There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. How to file 2012 tax return in 2014 Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. How to file 2012 tax return in 2014 Transferees who cannot claim percentage depletion. How to file 2012 tax return in 2014   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. How to file 2012 tax return in 2014 For a definition of the term “transfer,” see section 1. How to file 2012 tax return in 2014 613A-7(n) of the regulations. How to file 2012 tax return in 2014 For a definition of the term “interest in proven oil or gas property,” see section 1. How to file 2012 tax return in 2014 613A-7(p) of the regulations. How to file 2012 tax return in 2014 Figuring percentage depletion. How to file 2012 tax return in 2014   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. How to file 2012 tax return in 2014 If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. How to file 2012 tax return in 2014 If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. How to file 2012 tax return in 2014   In addition, there is a limit on the percentage depletion deduction. How to file 2012 tax return in 2014 See Taxable income limit , later. How to file 2012 tax return in 2014 Average daily production. How to file 2012 tax return in 2014   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. How to file 2012 tax return in 2014 Partial interest. How to file 2012 tax return in 2014   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. How to file 2012 tax return in 2014   You have a partial interest in the production from a property if you have a net profits interest in the property. How to file 2012 tax return in 2014 To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. How to file 2012 tax return in 2014 To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. How to file 2012 tax return in 2014 Then multiply the total production from the property by your percentage participation to figure your share of the production. How to file 2012 tax return in 2014 Example. How to file 2012 tax return in 2014 Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. How to file 2012 tax return in 2014 During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. How to file 2012 tax return in 2014 Javier had expenses of $90,000 attributable to the property. How to file 2012 tax return in 2014 The property generated a net profit of $110,000 ($200,000 − $90,000). How to file 2012 tax return in 2014 Pablo received income of $22,000 ($110,000 × . How to file 2012 tax return in 2014 20) for his net profits interest. How to file 2012 tax return in 2014 Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). How to file 2012 tax return in 2014 Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). How to file 2012 tax return in 2014 Depletable oil or natural gas quantity. How to file 2012 tax return in 2014   Generally, your depletable oil quantity is 1,000 barrels. How to file 2012 tax return in 2014 Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. How to file 2012 tax return in 2014 If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. How to file 2012 tax return in 2014 Example. How to file 2012 tax return in 2014 You have both oil and natural gas production. How to file 2012 tax return in 2014 To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. How to file 2012 tax return in 2014 Your depletable natural gas quantity is 2. How to file 2012 tax return in 2014 16 million cubic feet of gas (360 × 6000). How to file 2012 tax return in 2014 You must reduce your depletable oil quantity to 640 barrels (1000 − 360). How to file 2012 tax return in 2014 If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. How to file 2012 tax return in 2014 Also, see Notice 2012-50, available at www. How to file 2012 tax return in 2014 irs. How to file 2012 tax return in 2014 gov/irb/2012–31_IRB/index. How to file 2012 tax return in 2014 html. How to file 2012 tax return in 2014 Business entities and family members. How to file 2012 tax return in 2014   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. How to file 2012 tax return in 2014 Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). How to file 2012 tax return in 2014 You and your spouse and minor children. How to file 2012 tax return in 2014 A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. How to file 2012 tax return in 2014 Controlled group of corporations. How to file 2012 tax return in 2014   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. How to file 2012 tax return in 2014 They share the depletable quantity. How to file 2012 tax return in 2014 A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. How to file 2012 tax return in 2014 ” Gross income from the property. How to file 2012 tax return in 2014   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. How to file 2012 tax return in 2014 If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. How to file 2012 tax return in 2014   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. How to file 2012 tax return in 2014   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. How to file 2012 tax return in 2014 Average daily production exceeds depletable quantities. How to file 2012 tax return in 2014   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. How to file 2012 tax return in 2014 Figure your average daily production of oil or natural gas for the year. How to file 2012 tax return in 2014 Figure your depletable oil or natural gas quantity for the year. How to file 2012 tax return in 2014 Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. How to file 2012 tax return in 2014 Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). How to file 2012 tax return in 2014 This is your depletion allowance for that property for the year. How to file 2012 tax return in 2014 Taxable income limit. How to file 2012 tax return in 2014   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. How to file 2012 tax return in 2014 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. How to file 2012 tax return in 2014 For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. How to file 2012 tax return in 2014 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. How to file 2012 tax return in 2014 You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. How to file 2012 tax return in 2014 Add it to your depletion allowance (before applying any limits) for the following year. How to file 2012 tax return in 2014 Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. How to file 2012 tax return in 2014 (However, see Electing large partnerships must figure depletion allowance , later. How to file 2012 tax return in 2014 ) Each partner or shareholder must decide whether to use cost or percentage depletion. How to file 2012 tax return in 2014 If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. How to file 2012 tax return in 2014 Partner's or shareholder's adjusted basis. How to file 2012 tax return in 2014   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. How to file 2012 tax return in 2014 The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. How to file 2012 tax return in 2014   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. How to file 2012 tax return in 2014 However, in some cases, it is figured according to the partner's interest in partnership income. How to file 2012 tax return in 2014   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. How to file 2012 tax return in 2014 Recordkeeping. How to file 2012 tax return in 2014 Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. How to file 2012 tax return in 2014 The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. How to file 2012 tax return in 2014 The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. How to file 2012 tax return in 2014 Reporting the deduction. How to file 2012 tax return in 2014   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). How to file 2012 tax return in 2014 Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). How to file 2012 tax return in 2014 The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. How to file 2012 tax return in 2014 The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. How to file 2012 tax return in 2014 Form 6198, At-Risk Limitations. How to file 2012 tax return in 2014 Form 8582, Passive Activity Loss Limitations. How to file 2012 tax return in 2014 Electing large partnerships must figure depletion allowance. How to file 2012 tax return in 2014   An electing large partnership, rather than each partner, generally must figure the depletion allowance. How to file 2012 tax return in 2014 The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. How to file 2012 tax return in 2014 Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. How to file 2012 tax return in 2014   An electing large partnership is one that meets both the following requirements. How to file 2012 tax return in 2014 The partnership had 100 or more partners in the preceding year. How to file 2012 tax return in 2014 The partnership chooses to be an electing large partnership. How to file 2012 tax return in 2014 Disqualified persons. How to file 2012 tax return in 2014   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. How to file 2012 tax return in 2014 Disqualified persons must figure it themselves, as explained earlier. How to file 2012 tax return in 2014   All the following are disqualified persons. How to file 2012 tax return in 2014 Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). How to file 2012 tax return in 2014 Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). How to file 2012 tax return in 2014 Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. How to file 2012 tax return in 2014 Average daily production is discussed earlier. How to file 2012 tax return in 2014 Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. How to file 2012 tax return in 2014 Natural gas sold under a fixed contract. How to file 2012 tax return in 2014   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. How to file 2012 tax return in 2014 This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. How to file 2012 tax return in 2014 The contract must have been in effect from February 1, 1975, until the date of sale of the gas. How to file 2012 tax return in 2014 Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. How to file 2012 tax return in 2014 Natural gas from geopressured brine. How to file 2012 tax return in 2014   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. How to file 2012 tax return in 2014 This is natural gas that is both the following. How to file 2012 tax return in 2014 Produced from a well you began to drill after September 1978 and before 1984. How to file 2012 tax return in 2014 Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. How to file 2012 tax return in 2014 Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. How to file 2012 tax return in 2014 Mines and other natural deposits. How to file 2012 tax return in 2014   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. How to file 2012 tax return in 2014   The following is a list of the percentage depletion rates for the more common minerals. How to file 2012 tax return in 2014 DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. How to file 2012 tax return in 2014 Corporate deduction for iron ore and coal. How to file 2012 tax return in 2014   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). How to file 2012 tax return in 2014 Gross income from the property. How to file 2012 tax return in 2014   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. How to file 2012 tax return in 2014 Mining includes all the following. How to file 2012 tax return in 2014 Extracting ores or minerals from the ground. How to file 2012 tax return in 2014 Applying certain treatment processes described later. How to file 2012 tax return in 2014 Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. How to file 2012 tax return in 2014 Excise tax. How to file 2012 tax return in 2014   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. How to file 2012 tax return in 2014 Extraction. How to file 2012 tax return in 2014   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. How to file 2012 tax return in 2014 This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. How to file 2012 tax return in 2014 Treatment processes. How to file 2012 tax return in 2014   The processes included as mining depend on the ore or mineral mined. How to file 2012 tax return in 2014 To qualify as mining, the treatment processes must be applied by the mine owner or operator. How to file 2012 tax return in 2014 For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. How to file 2012 tax return in 2014 Transportation of more than 50 miles. How to file 2012 tax return in 2014   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. How to file 2012 tax return in 2014    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. How to file 2012 tax return in 2014 Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. How to file 2012 tax return in 2014 For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. How to file 2012 tax return in 2014 irs. How to file 2012 tax return in 2014 gov/irb/2013-01_IRB/ar11. How to file 2012 tax return in 2014 html. How to file 2012 tax return in 2014 Disposal of coal or iron ore. How to file 2012 tax return in 2014   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. How to file 2012 tax return in 2014 You disposed of it after holding it for more than 1 year. How to file 2012 tax return in 2014 You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. How to file 2012 tax return in 2014 Treat any gain on the disposition as a capital gain. How to file 2012 tax return in 2014 Disposal to related person. How to file 2012 tax return in 2014   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. How to file 2012 tax return in 2014 A related person (as listed in chapter 2 of Publication 544). How to file 2012 tax return in 2014 A person owned or controlled by the same interests that own or control you. How to file 2012 tax return in 2014 Geothermal deposits. How to file 2012 tax return in 2014   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. How to file 2012 tax return in 2014 A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. How to file 2012 tax return in 2014 For percentage depletion purposes, a geothermal deposit is not considered a gas well. How to file 2012 tax return in 2014   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. How to file 2012 tax return in 2014 See Gross income from the property , earlier, under Oil and Gas Wells. How to file 2012 tax return in 2014 Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. How to file 2012 tax return in 2014 Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. How to file 2012 tax return in 2014 A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. How to file 2012 tax return in 2014 Bonuses and advanced royalties. How to file 2012 tax return in 2014   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. How to file 2012 tax return in 2014 If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. How to file 2012 tax return in 2014 Figuring cost depletion. How to file 2012 tax return in 2014   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. How to file 2012 tax return in 2014 To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. How to file 2012 tax return in 2014 Figuring percentage depletion. How to file 2012 tax return in 2014   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . How to file 2012 tax return in 2014 Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. How to file 2012 tax return in 2014 However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. How to file 2012 tax return in 2014 Ending the lease. How to file 2012 tax return in 2014   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. How to file 2012 tax return in 2014 Do this for the year the lease ends or is abandoned. How to file 2012 tax return in 2014 Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. How to file 2012 tax return in 2014   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. How to file 2012 tax return in 2014 Include this amount in income for the year the lease ends. How to file 2012 tax return in 2014 Increase your adjusted basis in the property by the amount you include in income. How to file 2012 tax return in 2014 Delay rentals. How to file 2012 tax return in 2014   These are payments for deferring development of the property. How to file 2012 tax return in 2014 Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. How to file 2012 tax return in 2014 These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. How to file 2012 tax return in 2014 Timber You can figure timber depletion only by the cost method. How to file 2012 tax return in 2014 Percentage depletion does not apply to timber. How to file 2012 tax return in 2014 Base your depletion on your cost or other basis in the timber. How to file 2012 tax return in 2014 Your cost does not include the cost of land or any amounts recoverable through depreciation. How to file 2012 tax return in 2014 Depletion takes place when you cut standing timber. How to file 2012 tax return in 2014 You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. How to file 2012 tax return in 2014 Figuring cost depletion. How to file 2012 tax return in 2014   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. How to file 2012 tax return in 2014 Timber units. How to file 2012 tax return in 2014   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. How to file 2012 tax return in 2014 You measure the timber using board feet, log scale, cords, or other units. How to file 2012 tax return in 2014 If you later determine that you have more or less units of timber, you must adjust the original estimate. How to file 2012 tax return in 2014   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. How to file 2012 tax return in 2014 Depletion unit. How to file 2012 tax return in 2014   You figure your depletion unit each year by taking the following steps. How to file 2012 tax return in 2014 Determine your cost or adjusted basis of the timber on hand at the beginning of the year. How to file 2012 tax return in 2014 Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. How to file 2012 tax return in 2014 Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. How to file 2012 tax return in 2014 Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. How to file 2012 tax return in 2014 Divide the result of (2) by the result of (3). How to file 2012 tax return in 2014 This is your depletion unit. How to file 2012 tax return in 2014 Example. How to file 2012 tax return in 2014 You bought a timber tract for $160,000 and the land was worth as much as the timber. How to file 2012 tax return in 2014 Your basis for the timber is $80,000. How to file 2012 tax return in 2014 Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). How to file 2012 tax return in 2014 If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). How to file 2012 tax return in 2014 When to claim depletion. How to file 2012 tax return in 2014   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). How to file 2012 tax return in 2014 Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. How to file 2012 tax return in 2014 The inventory is your basis for determining gain or loss in the tax year you sell the timber products. How to file 2012 tax return in 2014 Example. How to file 2012 tax return in 2014 The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. How to file 2012 tax return in 2014 You would deduct $20,000 of the $40,000 depletion that year. How to file 2012 tax return in 2014 You would add the remaining $20,000 depletion to your closing inventory of timber products. How to file 2012 tax return in 2014 Electing to treat the cutting of timber as a sale or exchange. How to file 2012 tax return in 2014   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. How to file 2012 tax return in 2014 You must make the election on your income tax return for the tax year to which it applies. How to file 2012 tax return in 2014 If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. How to file 2012 tax return in 2014 You generally report the gain as long-term capital gain. How to file 2012 tax return in 2014 The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. How to file 2012 tax return in 2014 For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. How to file 2012 tax return in 2014   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. How to file 2012 tax return in 2014 The prior election (and revocation) is disregarded for purposes of making a subsequent election. How to file 2012 tax return in 2014 See Form T (Timber), Forest Activities Schedule, for more information. How to file 2012 tax return in 2014 Form T. How to file 2012 tax return in 2014   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. How to file 2012 tax return in 2014 Prev  Up  Next   Home   More Online Publications