I have money in suspension because I on purpose never signed the division order. It was with Energen, Diamondback and now is with TRP. All payments from Diamondback went into the suspension account which is what I wanted. TRP says the division order means nothing and has begun including payments to that well in my monthly check AND says they are going to pay out that money to me by the end of the year. I had planned on using that money as inclusion to a sell to boost what i would have in a 1031. I happily let it build in suspension ‘cause I did not want to pay annual taxes on that income. Now I’m thinking I need to sell off that one well so I can take advantage of getting a bigger 1031 by including the money in suspension. Location is Reeves Co, TX, H&GN Section 11 Blk 3. Comments?? Thx.
Are you expecting a purchaser to pay you extra for the full suspended funds without deducting the income tax payments it will owe? Most will only go for the suspended funds as a freebie as they are financially canny. And do you really mean a tax-free 1031 exchange or just trying to convert the suspense funds into capital gains?
thx for reply, the way i understand it, there is no income tax due since the funds have not been dispersed but remain attached to the mineral estate. they are calculated as part of the whole sale. most everyone i have talked to have standard purchase forms saying funds in suspense are not included as a protection to the seller but i want them included. the groups i have talked to like that fact 'cause they immediately get cash out of the sale and, being part of the sale, they become part of the capital gains total since they are part of the mineral estate i am selling.
That may be capital gains to you, but the released funds will be taxable income to the recipient and the oil company will send a 1099-Misc. Sure the buyer gets cash back, but will have to pay income tax - so the net value to the buyer is Suspense Royalties Less Income Tax. And any financially savvy buyer will adjust the other side of the sales value accordingly.
For years each year I would call Diamondback to get the amount in suspension and initially they would say they could not give it to me ‘cause I had not executed the division order then I would point it was part of my well’s asset and then they would call back with the amount. Now TRP, who purchased/swapped assets with Diamondback to become the operator/owner of these, now says the division order really has never been needed so they started including revenues from this well in the monthly disbursement and only this month I noticed and inquired. So ancillilary to my question about selling only this well, is a division order really needed? Has it always been only a proforma? Proforma definition being: From the Latin for “for the sake of form,” something done pro forma is a formality or a procedural step that doesn’t have much practical value but must be followed. To try to understand its legality of application, I found the division order for this well from each year and read them but am not so inclined to really understand it all by the grace of it being Greek to me so have not been able to draw any conclusions but I do have interest to know the answer of if a division order can be ignored as such - if that’s the case, they why do they bother to send them out in the first place?
Expanding on you question I to have questions. I have received division orders that were incorrect I did not sign due to fact in past I have signed for other mineral interest that are grossly underestimated and I was told that once I signed the division order I was agreeing with operators and could not without much difficulty change? So what happens when you don’t sign their division order order? Where is the interest going or held