I am the trustee of a small family minerals trust. Late in 2022 the State of North Dakota unclaimed property division made a payment to the trust that was for mineral royalties that XTO Energy should have paid directly to the trust. How do I report that payment on the trust’s 2022 tax returns? All I have is the net amount of the payment and the State of North Dakota doesn’t issue 1099s for those payments and XTO Energy claims that they don’t have the gross amount, production taxes, deductions, etc. related to the mineral royalties that they turned over to the State of North Dakota as unclaimed property.
Without the gross amount, I won’t have a number to calculate percentage depletion and I’d like confirmation whether there was any withholding for North Dakota state income taxes (I highly doubt it.)
I’m in Texas and no tax expert, certainly not regarding North Dakota.
I don’t see why the amount the trust received wouldn’t be reported on Sch. E like any other royalty income. On your question about the depletion deduction, assuming you are planning to take “percentage depletion”, I think you’ll find the allowed deduction is 15% of the gross royalty income. So you should have a basis for claiming 15% depletion on the amount the trust received knowing the deduction may be understated by 15% of any State taxes or production costs (compression, transportation etc.) that may have been deducted from the total the trust received.
You didn’t mention how long ago those payments went to the State. Are the wells those unclaimed payments came from still producing and the trust now receiving monthly royalties directly from the current operator? If so the current monthly statements would help you back-in to the original royalty amounts you should have received. If they are no longer producing but you can at least determine the decimal ownership interest the trust held in those wells, and the time period when the production occurred, you may be able to use historical production and sales data that was reported to the State for those wells to estimate what the gross amounts should have been.
I suggest discussing this with a CPA or tax person, particularly if the payment the trust got was significant. Guidance I’ve always tried to follow is, in case the IRS questions something you’ve claimed be sure you will be able to document a logical method you used to make any estimates involved with the amounts you reported.
Is it possible taxes have already been paid on the unclaimed royalties -? They may have been included in previous years 1099-misc? A simple zip code mistake or lost check can cause the royalty to get eventually moved to texas unclaimed property system.