Is oil well income unrelated business income?

[Flyboyjohn]

Hopefully someone from the booming oil production regions knows this without me having to hit the books, thanks

[QDROphile]

Assuming that you are interested because of a qualified trust, more information is needed about the what the trust owns. For example, if the trust owns C corporation stock of a company that owns oil wells and the trust gets "oil well income" in the form of dividends on the stock, then the income is not UBI. If the trust owns an oil well and gets "oil well income" in the form of sales proceeds from the sale of oil produced by the well, then the income is probably UBI.

[Flyboyjohn]

Thanks, the qualified plan would own an interest in the lease of the mineral rights which would generate profits from the sale of the oil pumped out of the ground so most likely UBI.

[QDROphile]

No comment.

[david rigby]

I have no idea about whether the facts lead to UBI. However, the possible investment should consider other fiduciary issues: for example, how liquid is it?

[John Feldt ERPA CPC QPA]

oil is a liquid.

[GMK]

I have no idea about whether the facts lead to UBI. However, the possible investment should consider other fiduciary issues: for example, how liquid is it?

where "it" refers to the investment, not the oil.

( I know it's obvious, but I couldn't let a good straight line pass without comment .)

[jpod]

I have no idea as to the answer, but what I do know is that the UBTI rules are overloaded with so many exceptions to accomodate various goals and other twists and turns that i would never try to answer without plowing through the rules, or better yet checking with someone who is proficient with those rules.

[K2retire]

Thanks, the qualified plan would own an interest in the lease of the mineral rights which would generate profits from the sale of the oil pumped out of the ground so most likely UBI.

Before I got into this business I worked for a family that owned numerous oil and gas leases. In addition to the receipt of cash income, they typically also had monthly bills to pay for drilling, maintenance, etc. Valuing the lease is also problematic. This is probably not a good plan investment for more reasons than just the potential for UBTI.

[Guest Rajeev]

Flyboyjohn... based on what you have stated, that the "plan would own an interest in the lease of the mineral rights which would generate the profits...", it would appear that the plan would be subject to UBTI (operating entity).

If the plan owned (partially or entirely) the land and leased the mineral rights and received rent (based on the terms of the lease), then there may be a chance that a portion of that rent is no subject to UBTI. The reason it would be a portion, is that in case the lease has a component of rent that is based on sales of product (i.e. oil and gas), then that component may be subject to UBTI (only provided that amount is not significant). Additionally, if there is debt on the property that is based on acquisition indebtedness, then a portion of the rent may be subject to UDFI based on UBTI (assuming the investment is not in a 401(k) plan).

So in a nutshell I am not adding anything new to what was said by the others, it is a complicated answer and the devil is in the details.

[GMK]

... the devil is in the details.

and it's definitely a slippery devil in this case.