What questions should I ask when interviewing a CPA about oil and gas investments?
Finding the Right CPA
Not all CPAs understand oil and gas taxation. The right advisor can maximize your deductions while the wrong one may miss thousands in legitimate write-offs.
The 10 Essential Questions
1. Experience Level
"How many oil and gas investor clients do you currently serve?"
2. IDC Knowledge
"Can you explain how Intangible Drilling Costs are deducted in year one?"
3. Depletion Methods
"What is percentage depletion and when does cost depletion apply?"
4. Working Interest Rules
"How does the working interest exception allow deductions against W-2 income?"
5. K-1 Processing
"Are you familiar with oil partnership K-1 schedules and where each item reports?"
6. AMT Implications
"How do IDC deductions interact with Alternative Minimum Tax?"
7. Multi-Year Planning
"How do you handle basis tracking for investments that span multiple years?"
8. State Tax Issues
"Are you familiar with severance tax credits and state filing requirements for oil income?"
Red Flags to Watch For
- No oil/gas clients - They may make costly errors on your return
- Unfamiliar with K-1 schedules - Partnership reporting is essential
- Cannot explain IDC vs tangible - This is fundamental knowledge
- Suggests treating as passive income - Working interest is specifically excepted
Green Flags
- Has worked with oil operators or drilling partnerships directly
- Can cite specific IRC sections (263c, 613A, 469)
- Proactively mentions estimated tax adjustments
- Asks about your investment timeline and structure
In Simple Terms
When interviewing a CPA about oil and gas investments, you want to verify they understand the unique tax benefits and can properly report your investment on your tax return.
Key questions to ask include: How many oil and gas investors have you worked with? Are you familiar with IDC deductions and percentage depletion? Can you explain how working interest income flows through to my personal return? Do you have experience with K-1 schedules from oil partnerships?
A qualified CPA should be able to explain the timing of deductions, how to handle multi-year investments, and the difference between active and passive treatment of oil income.
Legal / Technical Details
When evaluating a CPA's expertise in oil and gas taxation, focus on their familiarity with IRC §263(c) (Intangible Drilling Costs), IRC §613A (Percentage Depletion), IRC §469(c)(3) (Working Interest Exception), and proper Schedule E reporting of partnership K-1 income.
Essential technical questions include: Can you properly allocate IDC deductions between equipment and intangibles? How do you handle the AMT preference item for excess IDC? Are you familiar with the at-risk rules under §465 as they apply to oil and gas? Can you calculate depletion using both cost and percentage methods?
The CPA should demonstrate knowledge of proper basis tracking, passive activity loss carryforwards, and the 2025 OBBBA provisions restoring 100% bonus depreciation for tangible drilling equipment.
Real-World Example
Illustration only. The figures below are a worked example showing how the tax arithmetic behaves. They do not describe an actual investor, an actual result, or a projection of what any investment would return. Oil and gas drilling is speculative and can lose its entire value.
Example: Dr. Williams Interviews Three CPAs
Dr. Williams, a surgeon with $800,000 annual income, interviewed three CPAs before investing $200,000 in a drilling program:
| CPA A | No oil/gas clients - Declined |
| CPA B | Knew IDC basics but unfamiliar with working interest exception |
| CPA C | 15 oil/gas clients, explained AMT implications, quoted correct depletion rules ✓ |
Dr. Williams chose CPA C, who properly captured $160,000 in first-year deductions and set up quarterly estimated tax adjustments.
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Investment Disclaimer
Past performance is not indicative of future results. All investments involve risk, including the potential loss of principal. The projections, examples, and estimates presented are for illustrative purposes only and are not guarantees of future performance.
Oil and gas investments are speculative and involve significant risks including but not limited to: commodity price volatility, drilling and completion risk, regulatory changes, and geological uncertainty. Returns may vary substantially from projections based on actual well performance, oil prices, and operating costs.
This content is for educational purposes only and does not constitute investment advice. Consult with a qualified financial advisor, CPA, and attorney before making any investment decisions. Kingdom Exploration offerings are available only to accredited investors as defined by SEC regulations.
