Good News About
Your Taxes

The bright side of paying taxes is that your investment drew profit—and B&R is in the business of helping you protect as much as legally possible. We offer this tax information now to further clarify the tax forms you receive from us, and to mention possible deductions from our programs.

First, don’t look for a K-1.

If you invested in a B&R program in 2005, you received a Well Cost Summary report of the money you invested with us and how we allocated your funds. If you received money from an investment in a B&R program, we have also sent you a form 1099, which sets out the gross revenue from your share of the production and your share of the taxes and expenses. If, in the past, you have invested in oil and gas properties through limited partnerships, a K-1 set out what amount you post onto Schedule E on your personal 1040 tax form. And you probably expected to receive a similar document from us.

But we organize differently, so you will not receive a K-1 from B&R Energy.

As a B&R investor, you receive a direct interest in oil and gas wells, not an indirect interest through a limited partnership. Your B&R investment income and expenses, therefore, are filed on a Schedule C to your 1040. Schedule C identifies you as engaged in oil and gas exploration. (Independent oil producers are exempt from the Alternative Minimum Tax provision that apply to intangible drilling costs and percentage depletion.)

Then, when filling out your 1099.

If your programs with B&R produced in 2005—and you received proceeds in 2005—B&R sent you a form 1099. If you looked at the income amount on the form and thought, “I didn’t receive that much income from the program,” please also look at the attached Owner 1099 Report for YTD DED and YED 71EXP. When you post the 1099 information to your tax return’s Schedule C, please note:

income reported is entered as income
listed expenses are entered as expenses
the net amount is the amount you received—except for programs in which we made advances on an investor’s behalf to cover operations costs.

For a sample form and completed schedule C, please go to BandREnergy.com

IDC deduction?

On the same Schedule C from your 2005 investment, you may choose to deduct (or capitalize and amortize) the intangible drillings costs (IDCs) for the oil and gas used to explore and produce the program. The investment balance typically is capitalized and amortized over a five-year period, with the annual deduction shown on the Schedule C. (Our sample copy assumes that you deducted the IDC.)

Depletion deduction?

Based on the well’s gross revenues, you may also be eligible for a depletion deduction—which would appear in Schedule C on line 12, part II. The depletion deduction has some restrictions, so be sure to ask your tax advisor or preparer. Independent oil-and-gas producers may deduct 15 percent of oil and gas revenue, limited to production of 1,000 barrels of oil or 6 million cubic feet of natural gas per day—computed by gross income, not net. The deduction is further limited to the lesser of 65 percent of the taxable income before the depletion allowance, or 100 percent of the property’s taxable income before the depletion allowance. Any part of the depletion allowance now allowed by the 65 percent limitation may be carried over.

And finally . . .

Each person’s tax situation is unique! The best we can do is offer guidelines, never to be confused with tax or legal advice. For specific questions, we urge you to consult with your tax advisor. We thank you, again, for investing with B&R Energy.

Good News About Your Taxes