Can You Write off IDC (Intangile Drilling Costs) in an Oil & Gas Investment in an IRA?

Question:

Quincy, I wanted to see if you had any information about whether or not IDC (Intangible Drilling Costs) write offs from Oil and Gas can be utilized in any manner within a IRA? I suspect not but have never really found out for sure. It could make a difference when we have working interest projects on whether or not to use IRA or cash for the clients that we set up with Entrust.  One of your employees had mentioned UBIT’s would have some write off potential within the structure of an Oil and Gas investment that would include IDC’s.

Answer:

Although I’m not an expert on oil and gas issues, and as you know we do not give tax, legal or investment advice, what I can say is that if the IRA owns a working interest in a well that is considered to be Unrelated Business Income (UBI), on which taxes are owed by an IRA.  Because taxes are owed by the IRA, the IRA should get all the normal tax breaks, including the IDCs.  They can even have a NOL against future UBI taxes owed by the IRA.  In any event, the IDCs would be a deduction for the IRA against its UBI taxes, and would not benefit the individual owning the IRA on his or her personal tax return.  Did that answer your question?  Certainly you will want to verify tax matters with a CPA or other tax advisor of your choice, since Quest IRA, Inc. is not able to play the role of tax advisor. I apologize for not being of greater assistance.  Have a great day!

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