Taxpayer receives royalties from 2 different oil companies.
1) 1099Misc Box 2 Royalties. This has been reported on Sch E.
2) 1099Misc Box 7 Non-Emp Comp: company treats recipient as working interest and could be responsible for losses incurred. This has been reported on Sch C.
Both are passive to taxpayer. Are either of these eligible for 199A even though no trade or business dealings or are they merely investments? Both were inherited several years ago.
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Working interests held directly (as opposed to through a liability-limiting entity) are statutorily nonpassive. Royalties are statutorily portfolio (which is also not passive income).
The royalties are clearly not QBI, because portfolio income isn't QBI. I'd sign a return taking the position that the working interests were QBI - they're enough of a ToB to give rise to SE tax, after all.
Working interests held directly (as opposed to through a liability-limiting entity) are statutorily nonpassive. Royalties are statutorily portfolio (which is also not passive income).
The royalties are clearly not QBI, because portfolio income isn't QBI. I'd sign a return taking the position that the working interests were QBI - they're enough of a ToB to give rise to SE tax, after all.
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