O&G Investment is the last US Tax Shelter. Investment in the domestic O&G industry represents a significant U.S. policy priority to encourage less dependence on foreign oil, with unparalleled tax incentives offered by the U.S. government.
To illustrate this point, the tax shelters of O&G investment were some of the only incentives to survive the Tax Reform Act of 1986.
In its Oil & Gas Handbook, the IRS states: “The importance of the petroleum industry to the economy of the United States has led Congress to pass specialized tax laws that are unique to the oil and gas industry. Petroleum industry accounting records have been adapted to the specialized nature of the industry. As a result, an efficient and effective examination of a return with oil and gas investments, transactions, or operations will require specialized knowledge of the industry, accounting, and tax law”
Among the significant tax benefits of O&G investment, the Tax Code allows:
Income derived from O&G investments is subject to federal taxes, and in some jurisdictions, state taxes. Tax law also varies depending upon whether investments are made by an individual or a business entity such as a corporation or partnership.
The specific areas, which largely impact O&G investment taxation, include: