Assignment Of Overriding Royalty Interest With Negative Capital Account
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FAQ
An overriding royalty interest (ORRI) is an undivided interest in a mineral lease giving the holder the right to a proportional share (receive revenue) of the sale of oil and gas produced.NRI = Working Interest Royalty Interests.100 25 = 75 percent (NRI)$1,000,000 $250,000 = $750,000 (monthly NRI)More items...?
1. n. Oil and Gas Business Ownership in a percentage of production or production revenues, free of the cost of production, created by the lessee, company and/or working interest owner and paid by the lessee, company and/or working interest owner out of revenue from the well.
An overriding royalty interest (ORRI) is similar to a royalty interest in that it is also a portion of the proceeds from the sale of production. However, it is not retained under the terms of the oil and gas lease. An ORRI is granted, assigned and created under the terms of a separate document.
ORRI obtained as a means of raising capital would be taxed in the same manner royalty interests are taxed. The royalty payments would be taxed as ordinary income, subject to the passive activity rules; and, if held for one year or more, the sale or disposition of these interests would be taxed as capital gain or loss.
