SWAPO2 Neighborhood Rights

 Useful Tax Links

[Posted March 31, 2009]

By now, most of you have received a 1099-MISC tax form regarding your bonus payment from Carburante. We get a lot of questions about this form, and to get the most expert opinion, we refer you to the excellent reporting on this subject by the Fort Worth Star-Telegram,  where CPAs have been interviewed. Visit these links to learn more about gas-lease bonus rents and royalties:

Word Document on Income Taxes

Savvy Consumer Column by Teresa McUsic

We cannot recommend a course of action or give legal or accounting advice; however, it is our understanding from these documents that whether a gas-lease bonus check is classified as rent or royalty, it is classified as INCOME and not as capital gains. Some royalties are treated as capital gains, but these are either outside the mineral sphere or relate to depletion, which has not yet begun when the bonus is received. Again, read the above documents carefully and check with your own accountant and/or attorney.

If you really like complex documents, check out IRS documents relating to royalties and rentals:

IRS Publication 535, Business Expenses

The Royalty Rumble

The good news is we see active gas drilling in our SWAPO2 area along Highway 287.

The bad news is that some folks are mailing out offers to buy up ALL your royalties for 50% or less of what they may be actually worth. Almost any long-term payout such as an annuity, a judgment, or winning the lottery can be sold for cash, including oil-and-gas royalties. But the people offering to buy wouldn't be making the offer if they weren't already sure they would make LOTS more money off your investment than they are paying you.

The same is true for gas royalties. If they are actively marketing in our area, sending out thousands of letters and making phone calls, that means they are relatively sure that many people will be getting a regular, substantial payout.

While SWAPO2 cannot give legal advice or recommend your best course of action, we can say that most of the original board members are NOT going to sign away our long-term royalties for quick cash. We strongly advice you to seek accounting and/or legal advice before signing any such payout contract. We think most competent professionals would warn you against just how much you are potentially giving away over time.

Also be advised that no matter how you try to shift the money around, you are legally obligated to pay some taxes on the royalty--there is no way to get around it. Fancy instruments that claim to save you a few percentage points now may in fact cost you a lot more cash down the line.

So don't sign anything without running the numbers with an accountant or an attorney--or checking them yourself with a computer spreadsheet. Those of us who founded SWAPO2 from day one have done this analysis, and decided that  "selling out" early is not for us, any more than it would have been right sell our bonus rights for $5,000 per acre, which was the original offer for our area where the drilling rig now sits.

With the state of the economy being what it is, many are being prayed upon in their time of need.  Keep a clear head and think things through BEFORE you act.

The End of an Era

[posted November 5, 2008]

In case you haven't heard yet, the price of natural gas has dropped in early November 2008 to only half what it was when our deal ended in August 2008. No companies are signing new leases in our area, and if they do start up again it will likely be for much less money. We do get the occasional message from someone who could not sign a contract in time, but no deal can last forever. We feel very fortunate to have moved as quickly as we did in February 2008 and get the thousands of owners signed up and paid in only six months, record time in the Barnett Shale dealings for our area. 

We will continue to monitor the environmental impact of potential drilling and pipelines through our SWAPO2 area, and should drilling commence involving our area property owners, we will try to keep you informed. But again, with the current global economic decline in energy prices and production, it may be awhile until developers can make a profit in any area of the Barnett Shale, not just ours.

As for lingering issues about street-rights bonuses, most received this acreage by default in the original contract, and many have already received additional bonus checks. We do have a very small number left over who claim to have been promised a street-rights bonus additional check but have not received it. So far, we have only heard from less than a half-dozen individuals, but if you think you were promised additional money orally or in writing, please fill out and submit the Discrepancy Form by clicking here.

Closing the Store!