I own mineral rights in Arkansas for a number of producing gas wells. The gas is purchased by Seeco. I have observed that the royalty they report on my 1099 form is considerably greater than the amount actually paid. I contacted them about this and they admit the discrepancy and claim the amount on the 1099 form includes taxes and other expenses. When asked why they do not report the actual net royalty paid, they say that this is just how their system is set up. They give no breakdown of what the "taxes and other expenses" are, making it difficult to determine what to actually list on my 1099. When I pointed this out to them, the only answer they would give was, "You need to consult your tax professional". As a result of this, I have been keeping a list of all royalty payments received and using this figure when reporting royalty income on my tax return. So far, the IRS has not questioned the obvious discrepancy between this figure and the number reported on the 1099. I am wondering if others have this same problem and how they handle it?
Retrieve your stubs and total the gross payment of each month. It should total the same as your 1099 Gross income.
While most also report “net pay”, not all do. . I’ve processed about two dozen this year and three or four do not have anything but gross income. You should be reporting all of the numbers to your CPA as some of it may be deductible for you. For instance you may not be responsible for paying State taxes on the State severance tax that is deducted from your check.
Upon reviewing the 1099 form from Seeco, I see that they are reporting gross royalties in box 2. However, also included with the form, is a breakdown of of taxes and other deductions. When these are subtracted from the royalties, listed in box 2, it does equal the net royalties that I actually received. I think this clears up my concern and explains why the IRS has never questioned my use of the net royalty payments on my 1040.
Rick Howell said:
Retrieve your stubs and total the gross payment of each month. It should total the same as your 1099 Gross income.
While most also report “net pay”, not all do. . I’ve processed about two dozen this year and three or four do not have anything but gross income. You should be reporting all of the numbers to your CPA as some of it may be deductible for you. For instance you may not be responsible for paying State taxes on the State severance tax that is deducted from your check.