WorldWide Drilling Resource

60 MAY 2015 WorldWide Drilling Resource ® Drilling Into Money Not Boring by Mark E. Battersby Abandon Everything but Tax Savings The IRS (Internal Revenue Service) has long provided guidance for the tax treatment of newly acquired property, equipment, and other business assets. But what happens when machinery, equipment, or other business assets or property are no longer useful to the drill- ing, equipment, or supply operation? How do our lawmakers and the IRS view the old machine that broke down for the last time, a vehicle ready for trade-in, or other business property with little sales value? Fortunately, the drilling business can often claim an “abandonment” loss on its income tax return. However, for the IRS to accept a bona fide abandonment of any asset used by a drilling professional, supplier, distributor, or manufacturer, there must be an actual intent to abandon it. There must also be an “overt” act to abandon the asset. Not too surprisingly, this two- pronged test can prove difficult. If money changes hands, such as with a trade-in, and if the amount real- ized (if any) is more than the property’s adjusted basis, there is a gain. If the adjusted basis or book value is more than the amount realized (if any), then a loss results. Naturally, a loss from the abandonment of business or investment property is deductible as a loss. What’s more, a loss from abandon- ment of business assets or investment property is generally considered to be an ordinary loss; and ordinary losses are usually more beneficial than capital losses which have limited deductibility. Over time, productive assets used in a drilling operation or business may no longer be needed and the decision made to dispose of those assets. This disposal may occur by abandonment, sale, or exchange and involve items other than vehicles and equipment, all of which may be subject to abandon- ment and thus, a loss from abandonment. Even abandonment of items other than vehicles, equipment, or property - tangible or intangible - is tax deductible as an abandonment loss. As mentioned, a loss from an abandonment of business or investment property, other than a sale or exchange, is generally an ordinary loss. For the IRS to judge an abandon- ment as bona fide, the drilling operation or business must show intent to aban- don the asset, and must overtly act to abandon it. Because of the complexity of the rules and the necessity to prove an actual act of abandonment, professional assis- tance is strongly recommended - the abandonment loss is often worth the expense and the effort. Mark Mark E. Battersby may be contacted via e-mail at michele@ worldwidedrillingresource.com In Memoriam Keith Lloyd Brovold (1958~2015) The Minnesota Water Well Association is mourning the loss of member Keith Brovold who passed away March 27, 2015, after a courageous battle with cancer. Born in Montana, Keith was raised in Minnesota. He was a hard-working, dedicated person. Over the course of his life, he was employed by Hove Farms, Northern Pipeline, Muller Pipeline, Fosston Motors, Lenes Sand and Gravel, and most recently was owner of Brovold Wells, Inc. in Fosston, Minnesota. He enjoyed riding his Harley Davidson, playing golf, hunting deer and pheas- ant, fishing, gardening, and boating. Keith is survived by his wife Lucia, daughter Taylor, son Jacob, and other extended family. The management and staff of WWDR extends their sincere sympathies to Keith’s family, friends, and colleagues. Do you have the best wire for drilling applications? Want to share your products in WWDR ’s July issue all about wire? E-mail bonnie @worldwidedrillingresource.com or give us a call. (850) 547-0102 DEADLINE IS MAY 15 TH .