EAST LIVERPOOL - Long-time local certified public accountant Alfred Fricano has been spending a lot of time recently attending various workshops and seminars about the emerging shale drilling industry, and advises anyone considering leasing land to take time to consider the effects the added income could have in the future.
"I don't think it's taken off yet, but it (oil and gas leasing) has the potential for significant job creation, and could be a substantial economic boom for the area," Fricano said.
He advised anyone considering leasing offers to take the time to fully examine options and discuss their individual situations with their personal legal and tax professionals. He advised landowners to take into account not only the financial benefits for today, but the possible effects of the increased income on taxes, estates, and Social Security and Medicare in the future.
"A lot of people are unaware of the tax consequences," Fricano said. "You have to consider the long range effects of these decisions, and protect your family."
After attending a number of workshops and seminars on shale drilling, and lease options, Fricano put together a 15-page document with some basic information on the industry, and potential effects of the added income from leasing on estate planning and taxation in the future.
Included in the booklet are explanations of topics such as oil and gas industry terminology and measurements, drilling and development costs, and considerations of taxation and estate planning for anyone interested in leasing offers on their property.
Some of the information Fricano provides, for example, is about what a landowner can expect. A landman is the first person with whom a landowner will have contact. A landman is a independent contractor paid on commission.
The landman's commission is based on the amount of acreage leased. The landman presents the standard lease to the landowner.
Fricano explains a landowner and their legal representatives will draw up lease addendums. It takes about 60 to 90 days after signing for a bonus royalty to be paid.
Much of the information about the leasing activity pertains to how transactions such as payment for damages will be taxed. Fricano explained payments by the operator to a landowner for lost crops or timber, or lost wages or lost business income, are ordinary taxable income.
Premiums for Medicare taken out of Social Security will increase accordingly, depending on the amount of income received from oil and gas leasing and royalties, he explains.
Anyone considering gas leasing should take steps to protect the future stream of income, Fricano says. Make sure a will is in place and plan for annual gifts, he says. It may also be of benefit for a leasing landowner to form a limited liability company (LLP) or family limited partnership (FLP), Fricano advises.
Fricano's firm, A.S. Fricano & Co. recently merged with Daniel Wolfe's Salem firm, Byler, Wolfe, Lutsch & Kampfer, CPA's Inc., (BWLK). Fricano said the booklets are available free at the firm's East Liverpool office at 49020 Ashland Place.