by John Darer CLU ChFC CSSC RSP
The Structured Oil & Gas Lease Bonus Payment Option allows landowners to take advantage of IRS Revenue Ruling 68-606 by spreading out a lease bonus payment over a number of years, instead of getting whacked all at once in the first year.
In short, by ‘structuring’ the lease bonus, landowners can:
- Reduce current tax liability where the bonus payment pushes them into a higher tax bracket.
- Earn pre-tax interest accumulation to be paid in the future according to a schedule chosen by the landowner. Note: longer schedules provide the greatest advantage;
- Enjoy a customized structured payment plan that meets your anticipated future needs whether that be retirement, education of children or grandchildren, or anything else!
- Structured lease bonus payments are backed by an Agreement to Pay from Allstate Life Insurance Company, Allstate is rated A+(Superior) by A.M. Best Company at the time of posting.
FAQ About Structuring Oil & Gas Lease Bonus Payments (That's "The Frack" Jack!)
A. How Do I Take Advantage of the Tax Benefits?
- The oil and gas lease bonus payment must be ‘structured’ BEFORE the land lease is signed. If you’ve been offered a bonus from an oil and gas company during negotiations for lease payments on your property, DONT WAIT until everything is settled.
- You can only structure your lease bonus payment. Landowners cannot structure future royalties. They are not eligible.
- The critical details in the process for the Structured Oil & Gas Lease Bonus Payment Option must be handled properly and involve an insurance agent or firm that is licensed in your state, appointed and authorized by Allstate Life Insurance Company for structured settlements (or Allstate Life Insurance Company of New York, for New York landowners), together with your attorneys and/or other advisers.
B. What is the Basis for the Spreadout of Lease Bonus Payments on Oil and Gas Drilling and Exploration by Landowners?
Here is the Revenue Ruling citation:
Rev. Rul. 68-606, 1968-2 C.B. 42.378.40 Lease bonus income; installment contract.
Cash-method taxpayers who receive an installment bonus contract as consideration for an
oil or gas lease must include its value in gross income for the year in which the lease is executed
if the obligation is transferable and readily saleable. §§1.61–1, 1.446–1, 1.451–1. (Secs. 61, 446,
451; ’86 Code.)
C. What is the fee for structuring lease bonus payments?
If a structured lease bonus is elected, our firm receives a commission from Allstate Life Insurance Company or Allstate Life Insurance Company of New York for the placement of the funding vehicle.
D. What is the transaction flow for structured lease bonus payments?
- Parties agree on the terms of the oil and gas lease installment bonus contract, which includes the structured payments.
- The parties execute the Representation and Acknowledgeemnt Statement for Oil and Gas Lease Installment Bonus s Download Rep Acknowledgment for Oil and Gas Installment Bonus
- Lessor signs Hold Harmless Agreement Download Structured Oil and Gas Lease Hold Harmless
- Lessor and Lessee execute an Assignment of Obligation Agreement. See sample Download Structured Oil Gas Lease Bonus Assignment of Periodic Payment Obligation
- Money goes from the Bonus Payor (Lessee) to Allstate International Assignments, Ltd. , in Barbados subject the assignment of obligation (non qualified assignment).
- Allstate International Assignments, Ltd purchases funding agreement from Allstate Life Insurance Company (Allstate Life Insurance Company of New York, if you are a New York landowner)
- Allstate Life Insurance Company (Home Office: Northbrook, IL) issues an Agreement to Pay to back up Allstate International Assignments, Ltd.
E Is Allstate International Assignments, Ltd. Safe?
QUESTIONS? PLEASE CALL