The oil and gas industry faces complex tax obligations, ranging from erratic commodity prices to evolving regulations and multi-state operations. This often results in companies facing severance taxes, ad valorem taxes and burdensome federal mandates. Standard tax solutions will not suffice in such high-stakes conditions, especially since the slightest error could leave your organization vulnerable to audits, penalties and collections. Professional financial guidance delivers the best tax resolution options for oil and gas businesses and ensures stability.
Common Tax Issues in Oil and Gas Businesses
Oil and gas corporations often contend with intricate tax systems, including state-specific rules that present some of the most challenging compliance obstacles. For instance, North Dakota has a 5% hydrocarbon extraction tax levied on the oil removed from wells. The company must accurately document and pay this tax or risk costly fines and interest.
In Texas, operators must pay a 7.5% gas severance tax and a 4.6% oil severance tax. However, they may be eligible for specialized tax credits and exemptions if they use specific production methods, technological innovations or low-producing wells. Maximizing these benefits demands thorough recordkeeping and reporting — otherwise, entities may trigger audits and penalties.
Polston Tax is a national firm specializing in complex tax resolution and financial services, including those pertaining to the oil and gas industry. Its qualified team can assist your organization with Internal Revenue Service (IRS) and state taxes, wage garnishments, liens, audits, and payroll tax problems, among other everyday pressures your industry faces.
Tax Resolution Strategies — What Works Best?
Knowledgeable tax specialists can offer the best tax resolution options for oil and gas businesses. If your corporation is in a challenging situation, the following solutions may be helpful.
Installment Agreements
Enterprises that cannot pay the full tax liability up front may consider entering into an installment agreement. These plans enable you to pay off the debt in manageable monthly amounts, eliminating immediate financial stress.
A tax specialist can help you negotiate fair and sustainable installment agreements that best fit your earnings and operational needs. The Polston Tax experts oversee correct documentation to prevent costly mistakes. The structured payment plan they follow will enable your brand to balance its finances and boost its gains.
Offers in Compromise
Offers in compromise help oil and gas companies struggling with significant tax debt. The option enables you to resolve your tax obligations for less than the amount you owe, based on your ability to pay.
It is essential to assess your financial situation and gather documentation that supports your case when presenting it to the IRS, especially when you are facing economic hardships or disruptions that make it difficult to pay the full amount.
Penalty Abatement
Tax penalties can quickly add to your debt, causing serious financial strain and limiting operational flexibility. Penalty abatement reduces or eliminates IRS penalties if there is a valid reason, such as unforeseen events or administrative mistakes, offering much-needed relief and the ability to recover from setbacks.
Polston Tax boasts extensive experience in generating persuasive requests for the abatement process. Its ability to navigate through the various steps and achieve penalty abatement delivers immediate relief from financial stress and stops additional interest from building.
Special Considerations for Resource-Based Accounting
The oil and gas industry’s inconsistent commodity prices, tiered royalty structures and varying state-issued tax requirements necessitate special considerations. Resource-based accounting entails hyper-focused attention to detail when tracking production volumes, severance taxes and allowable deductions.
There are also several industry-related incentives and tax credits you may be eligible for. Polston Tax is adept at accounting, bookkeeping and IRS representation, highlighting its professionals’ ability to handle whatever unique challenges your company may face.
Leveraging Industry-Specific Incentives
In 2023, royalties accounted for most of the $8.497 billion in federal revenue from onshore oil and gas leases. Because of this significant economic impact, lawmakers often tailor tax relief measures to support ongoing development.
Industry-specific tax incentives, credits and deferrals may occur at the federal and state levels. For example, you might be eligible for credits if you produce fuel from a nonconventional source or extract oil from an existing well. State severance tax exemptions may be another opportunity to reduce taxable income.
Federal and state governments may also present relief programs during market instability to promote industry recovery. This happened during the COVID-19 pandemic, when officials passed the Coronavirus Aid, Relief and Economic Security Act. Under the act, the oil and gas industry was able to utilize net operating losses to offset past profits for up to five years, generating accelerated refunds and increased liquidity.
Why Work With Tax Professionals?
The tax landscape is constantly evolving, making it crucial for oil and gas entities to collaborate with experienced accounting professionals. A knowledgeable advisor can help you understand and navigate the unique challenges and ensure your business remains profitable and competitive.
A coordinated partnership between your in-house financial team and external consultant enables a holistic approach to taxes, accelerated risk identification and a fast response to regulatory changes. Likewise, it is essential to maintain detailed records of all transactions, risk assessments and audit preparations to avoid costly disputes and penalties. Overall, expert tax guidance positions your business for long-term growth.
Staying Agile Amid an Evolving Tax Landscape
The best tax resolution options for oil and gas businesses are within arm’s reach if you work with the right specialists. Always opt for the most experienced consultants with a proven track record of success in your industry.
