I need help in determining the Fair Market Value of mineral rights in the February 2011 timeframe. The mineral rights were in San Augustine County, TX. If someone can point me to a site that might have such data, I would appreciate it. It's tax time! I inherited these rights on that date, and I need the info for taxes.
Dear Ms. Dattalo,
If the minerals were in production, a reasonable place to begin would be the appraisal rolls @ December, 2010. That would get you in the neighborhood. For inherited producing minerals, the IRS will generally accept a basis of 36x the average royalty check for the 12 months preceding the date of death.
If the minerals were not in production, it gets more complex, i.e. have the minerals been condemned by seismic or drilling? Are they currently under lease? When was the last time they were leased? Activity in the are in 2011, etc.
For IRS estate valuation purposes, unleased minerals can be assigned a nominal value.
In any event, the valuation must follow IRS mandated procedures under the Oil and Gas Handbook, Part 4, Chapter 41, Section 1, et seq (the examining process).
Best,
Buddy Cotten
Thank you so very much for your prompt reply. This is an interesting scenario based on your information. The drilling started in November 2010, Mom passed away in Feb 2011, and we did not find out about the drilling and pending royalty checks until late spring of 2011 when we filed the change of ownership. I will gather the info that I have, and make my best estimate of their valuation. Thanks again
Hi Buddy,
I basically have the same problem. We are filing taxes on this past years sell of mineral rights that we inherited in 2006. We were advised to find the basis by finding out what the worth of these rights were in 2006. I do not know where to start. You mentioned appraisal rolls. Where or how do I find that? (the land was in Burleson County, Tx) We were told to see if we could get a copy of the estate tax return of the relative who passed on the rights, but I don't even know how to get that. I am not sure the information would be on it unless the rights had been leased and were in production. (however, I do think there was a lease at the time of her death with Clayton Williams, but little activity)
Thanks for any help you can provide.
Buddy Cotten said:
Dear Ms. Dattalo,
If the minerals were in production, a reasonable place to begin would be the appraisal rolls @ December, 2010. That would get you in the neighborhood. For inherited producing minerals, the IRS will generally accept a basis of 36x the average royalty check for the 12 months preceding the date of death.
If the minerals were not in production, it gets more complex, i.e. have the minerals been condemned by seismic or drilling? Are they currently under lease? When was the last time they were leased? Activity in the are in 2011, etc.
For IRS estate valuation purposes, unleased minerals can be assigned a nominal value.
In any event, the valuation must follow IRS mandated procedures under the Oil and Gas Handbook, Part 4, Chapter 41, Section 1, et seq (the examining process).
Best,
Buddy Cotten
Mineral Manager
Dear Tina,
If the estate was probated, there should have been an inventory of the estate. The value listed in the estate inventory would be your basis.
Having said that, please take it to a CPA for better qualified comments and advice.
Best,
Buddy Cotten
Thanks Buddy. Our accountant talked today with the lawyer who made and probated the will. He said that the value of the minerals where not included in the estate inventory. He was evasive as to why it was not done. Our next trail is to try to find the Burleson county tax appraisal from 2005 and hopefully the mineral values will be listed. I am waiting to find out if the records can be retreived. The lady at the courthouse said files from 2005 are no longer available and referred us to a company that takes care of their files. (Online records only have the land value- mineral value is not included. I was told today that the paper records should list both)
In the meantime, I came across paper work showing the land was under lease with Clayton Williams at the time we inhereted. I have a print out showing how much was paid to my aunt in royalties in a 6 month period. Looks like they were not producing- only taking off gas occasionally. I have the lease number and volume number where recorded. Would the lease give us the information needed for finding the value?
Our accountant has his hands full right now working with other clients, he has said go find this information....
Thanks again for any insight as to if I am on the right trail right now.
Buddy Cotten said:
Dear Tina,
If the estate was probated, there should have been an inventory of the estate. The value listed in the estate inventory would be your basis.
Having said that, please take it to a CPA for better qualified comments and advice.
Best,
Buddy Cotten
Mineral Manager
Dear Tina,
It sounds as if your hands might be full or tied. There is always one alternative and that is to claim the basis as $0.00 at the time of your possession. It would be to your benefit to have a high appraisal, of course, but to even suggest that an appraisal be anything other than an accurate reflection of the estimation of the appraiser is asking for real trouble.
If there was a producing well and the well was known, then a reasonable estimation can be made by taking the production for the years prior to death (assuming that it was producing at the date of death) and multiplying the production figures (this can be found at the railroad commission website) times the average monthly price for WTI and Henry Hub gas prices times the net royalty interest (which may or may not be easy to determine - depends on the completeness of the files).
Another source of information would be the tax returns of the decedent for several years prior to death and examine the various schedules for bonus payments or royalty payments. [Schedule E]
If the land was not in production, either a nominal value could be assigned (not leased, not productive), or if leased a value could be set at 4x the last lease bonus.
Cordially,
Buddy CottenTina Schutte said:Thanks Buddy. Our accountant talked today with the lawyer who made and probated the will. He said that the value of the minerals where not included in the estate inventory. He was evasive as to why it was not done. Our next trail is to try to find the Burleson county tax appraisal from 2005 and hopefully the mineral values will be listed. I am waiting to find out if the records can be retreived. The lady at the courthouse said files from 2005 are no longer available and referred us to a company that takes care of their files. (Online records only have the land value- mineral value is not included. I was told today that the paper records should list both)
In the meantime, I came across paper work showing the land was under lease with Clayton Williams at the time we inhereted. I have a print out showing how much was paid to my aunt in royalties in a 6 month period. Looks like they were not producing- only taking off gas occasionally. I have the lease number and volume number where recorded. Would the lease give us the information needed for finding the value?
Our accountant has his hands full right now working with other clients, he has said go find this information....
Thanks again for any insight as to if I am on the right trail right now.
Buddy Cotten said:Dear Tina,
If the estate was probated, there should have been an inventory of the estate. The value listed in the estate inventory would be your basis.
Having said that, please take it to a CPA for better qualified comments and advice.