Company: GULTU
Filing Date: 2025-03-28
Form Type: 10-K
Source: 0001641172-25-001201
Chunk: 17

Company: Gulf Coast Ultra Deep Royalty Trust
Filing Date: 2025-03-28
Form: 10-K
Item: Item 1A
Chunk 17
---
 tax treatment of ownership of the Royalty Trust units. If the IRS
were to determine (and be sustained in that determination) that the Royalty Trust is not a “grantor trust” for federal income
tax purposes, or that the overriding royalty interests are not properly treated as mineral royalty interests for U. S. federal income
tax purposes, the Royalty Trust unitholders may receive different and potentially less advantageous tax treatment.

If
the Royalty Trust were not treated as a grantor trust for U. S. federal income tax purposes, the Royalty Trust should be treated as a
partnership for such purposes. Although the Royalty Trust would not become subject to U. S. federal income taxation at the entity level
as a result of treatment as a partnership, and items of income, gain, loss and deduction would flow through to the Royalty Trust unitholders,
the Royalty Trust’s tax reporting requirements would be more complex and costlier to implement and maintain, and any distributions
to Royalty Trust unitholders could be reduced as a result.

If
the Royalty Trust were treated for U. S. federal income tax purposes as a partnership, it likely would be subject to the procedures for
auditing large partnerships as well as the procedures for assessing and collecting income taxes due (including applicable penalties and
interest) as a result of an audit. These rules effectively would impose an entity level tax on the Royalty Trust, and Royalty Trust unitholders
may have to bear the expense of the adjustment even if they were not Royalty Trust unitholders during the audited taxable year.

If
the overriding royalty interests were not treated as a mineral royalty interest, the amount, timing and character of income, gain, or
loss in respect of an investment in the Royalty Trust could be affected.

The
Royalty Trust has not requested a ruling from the IRS regarding these tax questions. The IRS could challenge these positions on audit,
and such challenges could be sustained by a court.

  27  

The
availability and extent of percentage depletion deductions to the Royalty Trust unitholders for any taxable year is uncertain.

Payments
out of production that are received by a Royalty Trust unitholder in respect of a mineral royalty interest for U. S. federal income tax
purposes are taxable under current law as ordinary income subject to an allowance for cost or percentage depletion in respect of such
income. The rules with respect to this depletion allowance are complex and must be computed separately