Replies to This Discussion

Permalink Reply by Joe Aldridge on March 12, 2011 at 6:09

Where is the property - What State? Is the property in production?

Permalink Reply by P.G. on March 11, 2011 at 5:11

I wonder if someone wanted to know what their mineral rights were worth if they could just ask a landman who is actively leasing in the area? They'd know if any body would, huh?

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Permalink Reply by Joe Aldridge on March 11, 2011 at 5:31

If the landman buys and sells minerals then yes. Landmen don't generally get involved in that end though. Buying minerals and leasing are two completely differently things. I would go with someone that is in the business of BUYING minerals not leasing. There are a number of royalty/mineral BUYERS listed on this site. I Think all you would need is an offer to buy from an agent that buys and sells minerals in the area that you are located. I'm not an attorney but I think that would be sufficient to establish value. Talk to a professional though. I think you would want to get more that one offer and use that to establish value. If you go to a oil and gas consultant - geologist/petroleum engineer - you will pay greatly for that appraisal. See cocodrie man's post from earlier in the week. That was the direction he went and it cost him dearly.

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Permalink Reply by P.G. on March 11, 2011 at 6:24

Say in an estate situation where you were gifting the mineral rights, for tax purposes, who would it be up to to establish the value of the "Mineral Rights"? (not the value of the un-produced minerals as lets say there was not any mining activity), you or the IRS?

Seems many of the answers on here are taking the potential value of the un-mined minerals into consideration in evaluating the value of Mineral Rights should they be exercised. I believe I read that in Louisiana, no one owns the minerals until they are reduced to possession. So Mineral Rights doesn't mean one owns anything other than the sole "right" to mine minerals under a specifically identified piece of land. It doesn't mean you "have" to mine those minerals, just means you could if you wanted to...

A geologist or petroleum engineer could come up with a potential value Mineral Rights could produce for it's owner for a specific piece of land if those rights were exercised but then that would put us back to evaluating the potential of the actual minerals of which a Mineral Rights owner does not "yet" own...

I can see the IRS standing with their hand out if one mined their minerals but how can they assess taxes on just the right to mine them?

 

Now I'm sure there are those who would pay money to take your position so they could have the sole right to mine those minerals. Oil and Gas companies lease them. It doesn't mean that they own anything other than the right though until they actually mine those minerals...

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Permalink Reply by Joe Aldridge on March 11, 2011 at 7:11

P.G.

In general You are correct in your evaluation of Louisiana Mineral Law. Even though you don't own the minerals before capture, you still have the right to capture. So those Mineral Rights have value. They can be bought and sold at anytime. If there is no production then the mineral rights have little value. That is why you want to transfer those rights for estate purposes before discovery. 

I think; You simply need to find someone that is knowledgeable about the value of the minerals in a certain area and get a written value from them. In the case of my parents: They  simply got a knowledgeable person - a real estate agent - to give them a written value of the property, as of a certain day.  In our case they transfered real estate not just the minerals. That became the day of record and was the date of transfer. It should work the same for a royalty/mineral rights valuation. Just get a person that deals in buying mineral rights and/or royalty and get a valuation of what they would pay as of a certain date. I don't see why this is so hard. There are people that have made statements on this thread that are not correct, in my opinion, and blow the process out of proportion. Again, I am not an attorney but this worked for us in the past and was accepted as a valid transfer of the property before my parents death. Neither the IRS or the LA Dept of Revenue questioned the transfer when the estate tax return was filed.

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Permalink Reply by RONNY on March 11, 2011 at 9:50

I'm with Joe on this issue.  The title of this thread was "Qualified Appraisals"  A qualified appraisal need not contain a bunch of fancy, expensive mumbo jumbo.  My net worth is 8 digits if you count the 2 after the decimal and I did stay at a Holiday Inn Express one time.

JMO

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Permalink Reply by TAURUS on March 11, 2011 at 10:10

So let's define what a "Qualified Appraisal" is.

 

Copied and pasted from the IRS website:

http://www.irs.gov/publications/p561/ar02.html#d0e1848

 

"

Qualified appraiser.   A qualified appraiser is an individual who meets all the following requirements.

1. The individual either:

   1. Has earned an appraisal designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised, or

   2. Has met certain minimum education and experience requirements. For real property, the appraiser must be licensed or certified for the type of property being appraised in the state in which the property is located. For property other than real property, the appraiser must have successfully completed college or professional-level coursework relevant to the property being valued, must have at least 2 years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and must fully describe in the appraisal his or her qualifying education and experience.

2. The individual regularly prepares appraisals for which he or she is paid.

3. The individual demonstrates verifiable education and experience in valuing the type of property being appraised. To do this, the appraiser can make a declaration in the appraisal that, because of his or her background, experience, education, and membership in professional associations, he or she is qualified to make appraisals of the type of property being valued.

4. The individual has not been prohibited from practicing before the IRS under section 330(c) of title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.

5. The individual is not an excluded individual.

 

  In addition, the appraiser must complete Form 8283, Section B, Part III. More than one appraiser may appraise the property, provided that each complies with the requirements, including signing the qualified appraisal and Form 8283, Section B, Part III.

 

Excluded individuals.   The following persons cannot be qualified appraisers with respect to particular property.

1. The donor of the property, or the taxpayer who claims the deduction.

2. The donee of the property.

3. A party to the transaction in which the donor acquired the property being appraised, unless the property is donated within 2 months of the date of acquisition and its appraised value is not more than its acquisition price. This applies to the person who sold, exchanged, or gave the property to the donor, or any person who acted as an agent for the transferor or donor in the transaction.

4. Any person employed by any of the above persons. For example, if the donor acquired a painting from an art dealer, neither the dealer nor persons employed by the dealer can be qualified appraisers for that painting.

5. Any person related under section 267(b) of the Internal Revenue Code to any of the above persons or married to a person related under section 267(b) to any of the above persons.

6. An appraiser who appraises regularly for a person in (1), (2), or (3), and who does not perform a majority of his or her appraisals made during his or her tax year for other persons.

 

  In addition, a person is not a qualified appraiser for a particular donation if the donor had knowledge of facts that would cause a reasonable person to expect the appraiser to falsely overstate the value of the donated property. For example, if the donor and the appraiser make an agreement concerning the amount at which the property will be valued, and the donor knows that amount is more than the FMV of the property, the appraiser is not a qualified appraiser for the donation.

 

Appraiser penalties.   An appraiser who prepares an incorrect appraisal may have to pay a penalty if:

1. The appraiser knows or should have known the appraisal would be used in connection with a return or claim for refund, and

2. The appraisal results in the 20% or 40% penalty for a valuation misstatement described later under Penalty.

 

  The penalty imposed on the appraiser is the smaller of:

1. The greater of:

   1. 10% of the underpayment due to the misstatement, or

   2. $1,000, or

2. 125% of the gross income received for the appraisal.

 

  In addition, any appraiser who falsely or fraudulently overstates the value of property described in a qualified appraisal of a Form 8283 that the appraiser has signed may be subject to a civil penalty for aiding and abetting as understatement of tax liability, and may have his or her appraisal disregarded.

 

Form 8283

Generally, if the claimed deduction for an item of donated property is more than $5,000, you must attach Form 8283 to your tax return and complete Section B.

If you do not attach Form 8283 to your return and complete Section B, the deduction will not be allowed unless your failure was due to reasonable cause, and not willful neglect, or was due to a good faith omission. If the IRS requests that you submit the form because you did not attach it to your return, you must comply within 90 days of the request or the deduction will be disallowed.

You must attach a separate Form 8283 for each item of contributed property that is not part of a group of similar items. If you contribute similar items of property to the same donee organization, you need attach only one Form 8283 for those items. If you contribute similar items of property to more than one donee organization, you must attach a separate form for each donee.

Internal Revenue Service Review of Appraisals

In reviewing an income tax return, the Service may accept the claimed value of the donated property, based on information or appraisals sent with the return, or may make its own determination of FMV. In either case, the Service may:

• Contact the taxpayer to get more information,

• Refer the valuation problem to a Service appraiser or valuation specialist,

• Refer the issue to the Commissioner's Art Advisory Panel (a group of dealers and museum directors who review and recommend acceptance or adjustment of taxpayers' claimed values for major paintings, sculptures, decorative arts, and antiques), or

• Contract with an independent dealer, scholar, or appraiser to appraise the property when the objects require appraisers of highly specialized experience and knowledge.

 

Responsibility of the Service.   The Service is responsible for reviewing appraisals, but it is not responsible for making them. Supporting the FMV listed on your return is your responsibility.

 

The Service does not accept appraisals without question.   Nor does the Service recognize any particular appraiser or organization of appraisers.

 

Timing of Service action.   The Service generally does not approve valuations or appraisals before the actual filing of the tax return to which the appraisal applies. In addition, the Service generally does not issue advance rulings approving or disapproving such appraisals.

 

Exception.   For a request submitted as described earlier under Art valued at $50,000 or more, the Service will issue a Statement of Value that can be relied on by the donor of the item of art.

 

Penalty

You may be liable for a penalty if you overstate the value or adjusted basis of donated property.

20% penalty.   The penalty is 20% of the underpayment of tax related to the overstatement if:

• The value or adjusted basis claimed on the return is 200% (150% for returns filed after August 17, 2006) or more of the correct amount, and

• You underpaid your tax by more than $5,000 because of the overstatement.

 

40% penalty.   The penalty is 40%, rather than 20%, if:

• The value or adjusted basis claimed on the return is 400% (200% for returns filed after August 17, 2006) or more of the correct amount, and

• You underpaid your tax by more than $5,000 because of the overstatement.

 

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Permalink Reply by Joe Aldridge on March 11, 2011 at 10:25

TAURUS,

Very good info. I agree that after production begins then this would apply. On the other hand if there is no production then the minerals have no value. You only have right to capture. You should be able to sell or donate your mineral rights before production on the type of deal that I described earlier. But that is a call a persons legal staff will have to make. 

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Permalink Reply by TAURUS on March 11, 2011 at 11:17

Joe ... Mr. Styles has already been told by his CPA that he needs to get a "Qualified Appraisal" in spite of them not being in production. So it applies "now". To say that the minerals don't have value if there is no production is ridiculous- that is IF they're in a PUD area. Of course they have value - that's why the O&G companies have leased all these acres of mineral rights. To go a step further, look at the deal that CHK made with PXP for $30,000.00 per acre in a JV. That leasehold wasn't necessarily in production yet and as part of the JV agreement PXP was going to have to pay the majority of the drilling costs just to bring it into production. So it was essentially the "Rights'' that they were paying this astronomical price for. Why? Because they valued the underlying minerals!

 

That'd be like saying 200 acres of Pine Timber measuring 36" DBH and 120' tall on average has no value because it hasn't been cut yet. Of course it has value. Would that property be valued the same if it was 200 acres of cut over? Of course not. The standing timber has intrinsic value - both present value and future value.

 

Look at the Bakken Shale up in Montana and North Dakota. Most of those Farmers don't own their minerals because they had been seperated from the property long before they bought the land. They own the surface. Don't you think that right now that land would have two values - one with the minerals and one without the minerals depending on its status? Especially considering that they're likely surrounded by PUDs. I guarantee you it would.

 

And what if a person leaves their estate to charity? That would change things up wouldn't it? Or what if they create their own Family Foundation (charity) and leave it to that? Well that could change things too wouldn't it? And what if their estate is below the taxable amount for estate taxes and they've made these transfers years ahead of time and they lose a possible step up in basis on the assets for the survivors at the time of death? That would factor into the equation wouldn't it? Joe, you make statements that are singular in focus and apparently based on hearsay aquired during your own family's process of handling things in the past. Advice should be given only after aquiring all the specific, relevant information of the family in question - and even then, only be given by licensed professionals which most in this thread are not - me being an exception. Even I'm holding back from giving specific advice though Ronny tried to draw me out.

 Look all the way down on the bottom of this page in the fine print. It says: GHS is not intended to provide official professional advice which includes but is not limited to advice relating to legal, financial, accounting, tax or investment and shall not be relied upon in any way.   

I'd recommend instead of anymore laymen giving advice about what to do or how to do it, we limit this conversation to providing a "source" for the "Qualified Appraisal" for Mr. Styles (which a source has been given already by a poster) and no more.

 

Respectfully .....

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Permalink Reply by TAURUS on March 11, 2011 at 11:42

Here are a few candidates for "Qualified Appraisals"

Appears to have excellent credentials and capabilities should the appraisal ever be contested:

http://www.gustavson.com/about/company_info.htm

 

This gentleman's bio indicates he's worked in the valuation of minerals in some noteworthy plays including here in the Ark-La_Tex:

http://roxnoil.com/requirements.htm

 

Substantial list of appraisers and expert witnesses on the topic, State specific at the bottom of the page:

http://www.jurispro.com/category/oil-and-gas-appraisal-s-98/

 

Surely someone in one of these firms can accomadate the request.

 

Permalink Reply by Jimmy Stiles on March 12, 2011 at 6:04

Taurus, that is exactly what we need. I appreciate you for adding very valuable information to ths discussion. We have been able to retain an individual who is with a Geologist/Petroleum Engineering firm to provide us with exactly what we need. We are not overly concerned with the cost, as we would prefer to go forward and have a complete "Qualified Appraisal". As a part of that, for us, the additional peace of mind we will have partially due to the detailed information provided in this post from everyone who has contributed and also from the qualified individual completing the "Qualified Appraisal"easily negates any concern over the expense - as it is truly not that much in the big picture of things at this point. Thankyou

Permalink Reply by TAURUS on March 12, 2011 at 14:21

You're very welcome Mr. Styles. Hopefully something here will help you complete your planning. Hats off to you for being proactive in your estate planning. I truly respect that and your family is blessed to have such proactive parents.

 

Let us know if you ever open up that Bacon Specialty shop. Maybe we'll swing by. Have you seen the restaurant Mario Batali's parents opened in Seattle during their "retirement"? It might be up your alley.

 

Check it out: http://www.salumicuredmeats.com/ 

 

Much success to you and your family......

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