Company: MTR
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001104659-25-029944
Chunk: 8

Company: MESA ROYALTY TRUST/TX
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1
Chunk 8
---
 forth herein (which do not bind the IRS or any court) will not be challenged by the IRS or will be sustained by any court if challenged.

Income and Depletion

Royalty income, net of depletion and severance taxes, is portfolio income. Subject to certain exceptions and transitional rules, Royalty income cannot be offset by passive losses. Additionally, interest income is portfolio income.

Generally, prior to the Revenue Reconciliation Act of 1990, the transferee of an oil and gas property could not claim percentage depletion with respect to production from the property if it was “proved” at the time of the transfer. This rule is not applicable in the case of transfers of properties after October 11, 1990. Thus, eligible unitholders who acquired units after that date are entitled to claim an allowance for percentage depletion with respect to Royalty income attributable to such units to the extent that this allowance exceeds cost depletion as computed for the applicable period.

Backup Withholding

Distributions from the Trust are generally subject to backup withholding at a current rate of 24%. Backup withholding will not normally apply to distributions to a unitholder unless the unitholder fails to properly provide to the Trust its taxpayer identification number or the IRS notifies the Trust that the taxpayer identification number provided by the unitholder is incorrect.

Sale of Units

Generally, except for recapture items, the sale, exchange or other disposition of a unit will result in capital gain or loss measured by the difference between the tax basis in the unit and the amount realized. Effective for property placed in service after December 31, 1986, the amount of gain, if any, realized upon the disposition of oil and gas property is treated as ordinary income up to the amount of intangible drilling and development costs incurred with respect to the property and depletion claimed to the extent it reduced the taxpayer’s basis in the property. Under this provision, depletion attributable to a unit acquired after 1986 will be subject to recapture as ordinary income upon disposition of the unit or upon disposition of the oil and gas property to which the depletion is attributable. The balance of any gain or any loss will be capital gain or loss if the unit was held by the unitholder as a capital asset, either long-term or short-term depending on the holding period of the unit. This capital gain or loss will be long-term if a unitholder’s holding period exceeds one year at the time of sale or exchange. Under current law, the highest marginal U. S. federal income tax rate applicable