Tax Benefits

DPP's provide significant tax advantages for investors incurring one-time taxable events such as exercising stock options, lump sum pension distributions or the sale of a business or property. Investors with passive incomes may also enter the DPP as a limited partner. Energy DPPs generally consist of oil and gas partnership programs. There are three primary benefits to investors in such programs:

• The write-off deduction using Intangible Drilling Costs (IDCs)
• The income stream generated by selling oil or natural gas produced
• The depletion allowance that can be used to offset that income stream for the productive life of the well.

The bulk, if not all, of IDCs occur during the first year. These costs include most fuel and hauling costs, the payment of wages to workers, drilling supplies and any other costs necessary to drill the well and prepare it for production. IDCs do not include the cost of equipment needed to drill the well; therefore, there is no salvage value offset associated with IDCs.

IDCs can be passed through to each investor who enters the DPP partnership as a general partner. The IDCs can be taken against investor income during the first year. The actual IDCs may be more or less than the contribution by the investor, this type of deduction can be a significant benefit for investors. The pass through tax deductions from IDCs can offset up to 40% of alternative minimum tax (AMT) income.

In other words, tax deductions obtained from intangible drilling and development costs, additionally, depreciation of tangible costs may be used to offset the investor's taxable income from other sources. Portions of the investor's taxable income generated by the drilling program may be reduced by deductions from depreciation, amortization, and percentage depletion allowances.

DISCLAIMER: THE ABOVE INFORMATION IS FOR GENERAL PURPOSES ONLY, THIS IS GENERAL INFORMATION AND IS NOT INTENDED TO BE INDIVIDUAL TAX ADVICE. CONSULT YOUR PERSONAL TAX ADVISOR CONCERNING THE CURRENT TAX LAWS AND THEIR APPLICABILITY AND EFFECT ON YOUR PERSONAL TAX SITUATION.