Operator Under Oil and Gas Lease Can Deduct Unreimbursed Business Expenses.

Under the facts of this memo, the operator of an oil and gas lease was required, via the operating agreement, to pay all of the expenses and bill co-owners their respective shares.  The operator paid the expenses up-front, but the co-owners didn't reimburse the operator for their shares.  A settlement was reached the next year for payment of the costs in year two.  The IRS determined that the unreimbursed expenses were deductible and were not barred by I.R.C. Sec. 162(f).  However, the operator could not deduct claim a business loss under I.R.C. 165 or a bad debt deduction under I.R.C. 166 for the unreimbursed amounts.  C.C.M. 20150801F (Apr. 22, 2014).