I am the CPA for a West Virginia LLC that was formed in 2011 by two sisters who inherited mineral rights on property in Wenzel County. Natural Gas is being extracted from this land under an agreement with Stone Energy. The sisters contributed their mineral rights interest to the LLC upon its formation and took back an interest in the LLC. I now find out that this transfer of these mineral rights from the individual to their controlled LLC needed to be reported to either the State of West Virginia or the county in which the land sits. I have not been very successful in researching this process on Google. Can you tell me if I should contact the county government in West Virginia or a state department?
David Gaither, CPA
Dear Mr. Gaither,
I would start with the county taxing authority for real property. I know that they should be notified. However, it is their job to pick up transfers in the deed records, but whether they do or not, you are still liable for taxes.
Thank you so much. The LLC has been reporting the income to both the IRS and West Virginia. It files a West Virginia Composite Tax return to -- paying the Member's WV income tax to West Virginia since inception. David
The transfer that you refer to; how was that accomplished? It should have been done with a deed. That deed should have been recorded in Wenzel County Clerk's office.
These are mineral rights. Who has a deed for mineral rights? I have never seen that. David
Mineral rights are a real property interest. As such, changes in ownership should be evidenced in writing (by a deed, usually) and that instrument placed of record in the county clerk's office to serve as notice to third-party purchasers.
Any decent oil and gas attorney should be able to assist your clients prepare this document. A little money spent now on legal fees will save on heartburn medication down the road.
I can't imagine the operator was paying the LLC for the royalties without the change of ownership from individuals to the LLC filed as a deed in the County Clerk's office. If a deed was filed, either your client or the county clerk's office should have it.
In Texas, when a change of ownership occurs for real property (although not always for minerals / royalties) by a deed, the county clerk's office sends copies to the county appraiser / tax assessor to update the ownership for tax purposes.
Thank you.....but believe it the ... the operator was/is paying the LLC without this being recorded.