- Ag Docket
(plaintiff, a partnership, paid $5.1 million for turnkey oil and gas well drilling venture; site preparation occurred during 1999 (tax year in issue), but no drilling occurred within 90 days after end of 1999; plaintiff deducted full $5.1 million in 1999 as intangible drilling costs, but amount denied because economic performance requirement of I.R.C. Sec. 461(h) not satisfied; IRS position affirmed – commencement of drilling occurs upon actual penetration of ground for well drilling purposes; 3.5 month rule of Treas. Reg. Sec. 1.461-4(d)(6(ii) does not allow plaintiff to treat any of service due under contract as having been economically performed in 1999 – all services required must be rendered within 3.5 months of payment; in any event, deductions allowed under 3.5 month rule limited to cash payments (or equivalents) but not payments by notes).
CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.