Production and sale of oil. X is a C corporation that purchased a working in- terest in an oil and gas property for $100,000 on July 1, 1993. X elects to become an S cor- poration effective January 1, 1996. On that date, the working interest has a fair market value of $250,000 and an adjusted basis of $50,000, but no oil has as yet been extracted. In 1996, X begins production of the working interest, sells oil that it has produced to a refinery for $75,000, and includes that amount in gross income. Under paragraph (a)(1) of this section, the $75,000 is not recog- nized built-in gain because as of the begin- ning of the recognition period X held only a working interest in the oil and gas property (since the oil had not yet been extracted from the ground), and not the oil itself.
Appears in 4 contracts
Samples: www.govinfo.gov, www.govinfo.gov, www.govinfo.gov
