I received a 1099-misc tax form from Antero a week ago and the BOX 2. royalties was about 25% higher than the amount I received. It also listed owner deductions which was (the difference between what I received and the amount in BOX 2). Has anyone had the same issue and if so can you explain how I can report the correct amount on my taxes.
Schedule E - report gross royalties. Deduct expenses on lower lines. Depletion is calculated on gross royalties. You may also be able to deduct other direct expenses. Your CPA can confirm and help you with this.
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I am piggy-backing on this thread because it is still open and I highly respect TennisDaze’s answers and insights. This regards my 2022 1099-MISC from XTO. I have a Royalty Interest (RI) in these oil wells. The supplemental information on pg 2 of this tax form lists Deductions and Taxes which are nowhere close to my Excel tallies from monthly royalty check stubs (the totals I keep from the break outs at bottom of each stub). There is also a 2nd column labeled Reimbursements (RI) with no other explanations, with the same amount appearing by each line item - just confusing. The Box 2 (Royalties) and Net numbers are exactly correct, though. I have tried to contact XTO for 1099 questions by phone and email to no avail. I have read the reply by TennisDaze to a closed post apache-statement-reflecting-tax-refunds and understand that reimbursed taxes, etc from prior years are reportable as income in the year that they are paid, not produced.
I just want to hear it from someone else, that the Reimbursement amount listed represents some net refund amount of severance taxes or deductions from prior production months, and that I should adjust the Tax and Deduction expenses reported on Sch E, downward accordingly. There are numerous retroactive royalty adjustments for prior production months in almost every royalty statement, and dumping the text from downloaded PDF I can count with some handy search tools over 7000 line item adjustments across all of 2022 check stubs combined. Some of the prior month adjustments date back to production year 2018. I intend to eventually write a program to tally this data up by production month and that may or may not match up with the numbers listed on the 1099-MISC. Please understand why I have not attempted to do these calculations by hand. Altogether there are 28 wells split amongst 4 leases being reported on one statement.
If I take 1099-MISC Box 2 amount, subtract their Taxes, Deductions (from 1099 form), then add back the Reimbursement amount and also add back the Statutory Interest reported on 1099-INT form, voila, I get the Net amount shown on 1099-MISC and it is the correct Net amount per my bank account. My issue is that the supplemental Tax and Deduction amounts that they list are not even close to the total of the roll-ups that appear at the bottom of each royalty check stub. Is this information on 1099 intended to be helpful or misleading?
So I have read in another thread “oil companies are only required to report [accurately] gross proceeds to IRS and nothing more”. So then can I take it that the Deductions and Taxes listed as supplemental information on 1099-MISC are basically “trash” and the IRS won’t bat an eye if my breakout expenses itemized on Schedule E are much different numbers? In past years I combine Royalty Severance Taxes with Mineral Property Taxes as one Tax expense line item on Schedule E. I report 100% of Deductions as a miscellaneous expense which I label “Production Costs” on Schedule E. Is this reasonable way to report? I was toying with the idea of listing Reimbursement amount as a negative expense on Schedule E - probably a bad idea. I think I should just adjust the Tax and Production Cost expenses to the numbers I can prove out from royalty statements.
For the other readers of this thread here is something I do know: XTO’s fine accounting department reports Statutory Interest income on royalty statements as a negative deduction, thus the roll-up for Owner Deductions at the bottom is misleading. To get the actual Owner Deductions I add back the total Statutory Interest amount. This speaks to the point I made above about reconciling the Net amount shown on the 1099-MISC form. So my advice is do not use the Tax and Deduction numbers on the 1099-MISC blindly. Go by the data on individual royalty statements if it is practical, but be aware of the Interest payment inclusion in Owner Deductions. Would it hurt XTO to break Interest out as a separate column?
I don’t know. I may have just answered my own questions by writing this post. It just irks me how many retroactive adjustments XTO makes on each royalty statement. Sometimes they only make $0.01 difference. I truly believe that they do it intentionally to obscure the understanding of the royalty statement and tracking of data by the average Royalty Interest owner. It would be hard to know but I bet I could find a correction that is reversed by a correction at a later date if I looked hard enough. If it hasn’t come across, I am casting shade on XTO’s accounting practices. I do believe their deductions on Gas Residue are inconsistent, and they are often split them into two lots for a single well.
First, you should sign up for EnergyLink and pull down its version of your XTO royalty check. The check detail there will clear up some of your confusion as it has separate lines for severance, gathering, transportation and other costs at net royalty level. Note that the difference between “Value” and “Amount after Taxes and Deductions” is the sum of the all the costs. EnergyLink is a free service to mineral owners. Second, XTO does the adjustments correctly, as it reverses 100% of the original data for product and a production month and then re-books 100% of the corrected data. This lets you see that the volume may be the same, but there is a price adjustment so the gross sales is different. This will cause a difference in the severance tax as it is based on the total sales, but not generally in the costs as those are generally on a per-mcf basis. Third, XTO sends a separate 1099-INT for the interest income as that is not reported on Schedule E, but on your Schedule B (Interest and Dividends). Finally, XTO lists Statutory Interest on your check detail as a negative expense and not as part of your oil and gas sales. This is a quirk in its accounting system and will look the same on the EnergyLink check detail. It also prevents you from overstating gross royalty income. Note that the Interest DOI is 1.00000 for all wells, instead of the smaller well decimal.
Yes, I have an EnergyLink account and get all my data from there. I download the PDF which are password protected so as to keep people from mining text or copy/pasting text from those downloaded files. Those statements are free but useless to parse with a computer program that does not have sophisticated OCR capability. The Excel CVS files are not free; you have to pay per each monthly and I refuse to do that.
As I stated, there were over 7000 retroactive line item adjustments total in my set of 2022 check stubs. I will at some point reconcile those by net deduction and net income per production month and maybe that will explain the supplemental expense/reimbursement figures listed on 1099-MISC. I also thought I was clear about the Statutory Interest income being claimed as a negative deduction on monthly check stubs and reported on 1099-INT.
I do seriously question why EXXON/XTO accounting has to make so, so many retroactive adjustments going back years.
I am also looking for a good accountant to prepare/review tax returns, someone with expertise in oil/gas royalties and also LLCs that operate farm rentals in Texas, but I am a resident of California and they should also understand CA Franchise Tax Board tax differences. If you can recommend someone, please PM me. Thanks.
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