answer Q 7

6. Offshore Oscar secures permits for development of certain nearshore blocks in 1960 but, under state regulation, is not allowed to drill other than from land. Oscar enters into an agreement with Landowner Lill to drill from Lill's property onshore, and Lill secures a 50\% net profits interest in the agreement, in exchange for Lill allowing Oscar to enter her lands, drill, and produce any successful wells. Can Lill claim depletion on the net profits payment received in 1961 once production has begun and she receives settlement from Oscar? 7. A foreign country enters into an agreement with a U.S. oil and gas company for exploration, production, refining, and sale of foreign country's oil. Under the agreement, the U.S. oil and gas company pays a pro rata portion of the costs of operation, advances funds to foreign country as capital for the venture, and receives credits against future purchases of oil and gas from foreign country for prior investments made by the U.S oil and gas company in the foreign country's oil fields. Title to the oil, under the constitution of the foreign country, remains with the foreign country until delivered at the wellhead to the U.S. oil and gas company. All of the credits or payments to be received by the U.S. oil and gas company from foreign country are repayable solely from production of foreign country's oil and gas. Does the U.S. oil and gas company have an economic interest and if so, what are the tax consequences? 1 Palmer v. Bender, 287 U.S. 551, 53 S. Ct. 225 (1933). 2 Thomas v. Perkins, 301 U.S. 655, 57 S. Ct. 911 (1937). 3 Kirby Petroleum Co. v. Comm'r., 326 U.S. 599, 66 S. Ct. 409 (1946). 4 Burton-Sutton Oil Co. v. Comm'r, 328 U.S. 25,66 S. Ct. 861 (1946). 5 Helvering v. Bankline Oil Co., 303 U.S. 362, 58 S. Ct. 616 (1938). 6 Helvering v. O'Donnell, 303 U.S. 370, 58 S. Ct. 619 (1938). 7 Comm'r v. Sw. Expl. Co., 350 U.S. 308, 76 S. Ct. 395 (1956). 8 Comm'r v. Estate of Donnell, 417 F.2d 106 (5th Cir. 1969). 9 Anderson v. Helvering, 310 U.S. 404, 60 S. Ct. 952 (1940). 10 Estate of Weinert v. Comm'r, 294 F.2d 750 (5th Cir. 1961). 11 I.R.S. Tech. Adv. Memo. 99-18-002 (Jan. 15, 1999). 12 Gulf Oil Corp. v. Comm'r, 914 F.2d 396 (3rd Cir. 1990)