Oil & Gas Royalties input screen

[Emm1234]

Can someone explain how exactly to handle oil & gas royalties for entities in Lacerte? I don't understand the need for a "Set", and then "properties" when we are talking about an entity that just simply having passive income from royalties. I have never had a program that has a separate tab for Oil & Gas and is set up this way. Usually it is on the same tab as rentals and you just select "royalties" (This option is available for Individuals in Lacerte even though there is also the Oil & Gas input screen however), and that way i could add additional expenses that related to their O&G business, such as Legal & Professional Fees. With the Oil & Gas input screen, all those additional expense lines are not an option, and it seems like the options are 1) Put all to "other expense" under the property, 2) Put under "overhead expense" under the set or 3) Not specifically tie it to the O&G worksheet and just put it under Other deductions on the Other Sch. K input screen. Is there a wrong answer? 

Oil & Gas is the only income this entity has at the moment. What am I missing with this??

I would also like any insight on how to remove the depletion calculation at the entity level - we generally just provide the information to the partners on the K-1 so they have the ability to calculate the depletion at the individual level. 

[qbteachmt]

There are some articles link to this:

https://proconnect.intuit.com/community/federal-taxes/help/corporate-oil-and-gas-frequently-asked-qu...

[Emm1234]

I've reviewed those articles and searched the community using lots of different words to try and find articles, but none of them answer the questions I have asked. Thank you for the link though!

[PhoebeRoberts]

This is the minimum-input setup for a multi-state partnership where I calculate tentative depletion in an Excel file.

[Emm1234]

This was helpful! Thank you. 

For the Depletion though, I selected for the book depletion  line = 4 'Book Depletion' and that removed the amount from the balance sheet and the M-1, because I did not enter anything in the book depletion box in the Oil & Gas schedule, but the federal automatic calculation amount still shows up on the M-2. Is this necessary? Is there a way to remove it? This obviously makes it where my balance sheet is out of balance by that amount. 

Basically, I would just like to add depletion amounts as a note to the K-1, and then if they are eligible to take depletion on their individual return, they can. 

[qbteachmt]

Your title includes "royalty" and you mention this is passive. That means you have no operating activity, and just have a 1099-Misc for this entity?

https://proconnect.intuit.com/taxprocenter/tax-law-and-news/basic-tax-reporting-of-oil-and-gas-relat...

"i could add additional expenses that related to their O&G business, such as Legal & Professional Fees."

Is that a working interest, then?

I guess the question is, what is their Activity? Perhaps those costs are Entity Costs and not related to O&G, even if that is the only cash flow (investment).

https://proconnect.intuit.com/community/federal-taxes/help/partnership-k-1-input-oil-gas/00/3690

[Emm1234]

Yeah I guess I misspoke when I said passive income, as oil and gas royalties are not considered passive income, but I was just trying to indicate that it is not a working interest. They just receive income on the oil and gas extracted from the mineral rights they own. It is reported in Box 2 - Royalties. In the past we have just reported additional expenses such as legal fees, property tax on that land, etc. on Sch E since that is the only activity that the entity has and without that activity, they would not have had anything. But maybe we should be reporting it just under entity deductions? 

[qbteachmt]

"It is reported in Box 2 - Royalties. In the past we have just reported additional expenses such as legal fees, property tax on that land, etc. on Sch E"

Did you click the two new links I provided and read that info?

[PhoebeRoberts]

What constitutes allocable overhead for depletion is a matter of professional judgement. For my companies with royalty income, I allocate overhead to royalties vs other income on the basis of gross income, and allocate amongst royalties on the basis of expense. I don't treat ad valorem tax as overhead; I consider it a direct expense of the property the tax is paid on. Tax prep and other sort of "generic" business costs are overhead. Legal fees related to title issues are leasehold costs, not an expense item.

[PhoebeRoberts]

Under Book Depletion, don't pick 4 = book depletion. Enter a -1 (which is Lacerte for zero). Does that get you the presentation you want?

Depletion is by definition a partner-level item, with tentative depletion handled via a note to the K-1 - that's what the "partner's summary of oil and gas activities" is.

Tax-basis capital accounts are not outside basis, other than coincidentally, if that's your concern.

[Emm1234]

Yes, I see now where it says those expenses can go on Sch. E

[Emm1234]

Well Lacerte does not allow a -1 in this box, see screenshots for the message I get. So when I select the Book option, then it sets it to 0, taking it off the balance sheet and the M-1 Schedule (Which is what I am looking to do). However, it still shows up on the M-2 as an 'other decrease' - which makes the balance sheet off by that amount because my equity is decreased by that amount, and I can't file the return with a balance sheet that doesn't balance. So from what I can tell, my only option is to just override the ending capital account balance?