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Fund 2020, LP Tax Overview

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Tax Incentives

• Recently Passed 2017 Tax Law Allows For Accelerated Depreciation On Certain Capital Investments

• Fund 2020 SWD Equipment Qualifies

• Investment Can Be Used To Offset Ordinary Income

- 2018 offset to ordinary income was 94% of invested dollars

- 2019 offset to ordinary income was 88% of invested dollars

• General Partner Preferred Units Transfer To Limited Partner Preferred Units January 2021

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SWD’s and Bonus DepreciationThe following is my analysis regarding 100% bonus depreciation on SWD wells.

The question is, does SWD well equipment qualify for 100% bonus depreciation?

As always with any tax issue, we must look to the individual facts & circumstances of the case. §168(k) allows for a 100% bonus depreciation deduction for “qualified property”. So, is SWD well equipment “qualified property”?

The Internal Revenue Code (IRC) does disqualify water utility property from taking advantage of 100% bonus depreciation. However, SWD well equipment is not “water utility” property. SWD is a support activity for oil & gas drilling, and thus it should qualify for 100% bonus depreciation for tax years ending on or before January 1, 2023.

Furthermore, in the Oil & Gas audit guide, SWD equipment is categorized as “lease & well equipment”, not utility equipment, further bolstering our case.

I’m of the opinion that SWD equipment and wells are not “water utility equipment” because the underlying activity is support for Oil & Gas mining, not gathering, treating, or commercially distributing water.

Thanks,Matt Heider, MSA, CPATax SeniorRobinson Burdette Martin & Seright, L.L.P.9816 Slide Road, Suite 301Lubbock, Texas 79424

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How the Math Works – 2019 Actual

Assumes a 37% Federal Tax RateDoes Not Include Any SALT Benefits

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General Partners – Active Income

“Reg. 1.469-1T(4) holds that an interest in oil & gas working interest is not passive if the entity through which the taxpayer holds the interest does not limit the taxpayer’s liability.

Therefore any general partner whose liability is not limited is not subject to the passive activity rules.”

Matt Heider, MSA, CPA, CVATax SupervisorRobinson Burdette Martin & Seright, L.L.P.9816 Slide Road, Suite 301Lubbock, Texas 79424

https://www.irs.gov/pub/irs-pdf/p925.pdf

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Tax Cuts and Jobs Act of 2017• Act Sec. 3101(a), Act Sec. 3101(b)

• Under the Act, instead of bonus depreciation for qualifiedproperty, taxpayers would be able to fully and immediatelyexpense 100% of the cost of qualified property acquiredand placed in service after Sept. 27, 2017 and before Jan.1, 2023 (with an additional year for certain qualifiedproperty with a longer production period). (Act Sec.3101(a), Act Sec. 3101(b))

• Property would be eligible for this immediate expensing ifit is the taxpayer’s first use, repealing the currentrequirement that the original use of the property beginwith the taxpayer. (Act Sec. 3101(c)) The Act wouldprovide that qualified property would not include anyproperty used by a regulated public utility company or anyproperty used in a real property trade or business. (ActSec. 3101(d))

• Under the Act, the taxpayer’s election to use the minimumtax credit in lieu of the additional depreciation would berepealed, effective for tax years beginning after 2017

https://www.irs.gov/newsroom/new-rules-and-limitations-for-depreciation-and-expensing-under-the-tax-cuts-and-jobs-act