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LSDefine

Simple English definitions for legal terms

ABC transaction

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A quick definition of ABC transaction:

An ABC transaction is a type of sale in the oil and gas industry. It involves an owner (A) selling a working interest to an operator (B) for cash and the promise of a larger payment when the well produces. A then sells the right to the production payment to a corporation (C) for cash borrowed from a lender. This allows A to receive cash taxed at lower rates and B to pay part of the purchase price with non-taxable production income. However, the tax benefits of this transaction were eliminated in 1969 by the Tax Reform Act.

A more thorough explanation:

An ABC transaction in the oil and gas industry is when:

  • Owner A sells a working interest to Operator B for a cash payment and the right to a larger payment when the well produces.
  • Owner A then sells the right to the production payment to Corporation C.
  • Corporation C pays Owner A in cash borrowed from a lender, using the production payment as collateral.

The purpose of this transaction is to provide tax advantages for Owner A. They receive cash taxed at capital-gains rates, while Operator B pays part of the purchase price with nontaxable production income.

For example, let's say Owner A sells a working interest to Operator B for $100,000 and the right to a production payment of $500,000. Owner A then sells the production payment to Corporation C for $400,000. Corporation C borrows $400,000 from a lender and uses the production payment as collateral. Owner A receives $400,000 in cash and pays taxes at the lower capital-gains rate.

This type of transaction was popular in the past but was eliminated by the Tax Reform Act of 1969.

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Dkk
18:57
I want to meet an attorney that defends clients who run into flat earth problems. I want an attorney that knows and believes in flat earth theory.
19:05
i want a flat earther for president. i want a guy who posts on 4chan for president. i want someone who mogs for president.
Dkk
19:18
Exactly. My version of that awful poem.
Dkk
19:19
I can accept a president with maybe one or two of the poems traits hut good God, all of them??? No ty.
windyMagician
19:20
president who respects sex is crazy
windyMagician
19:20
we had bill clinton already
Dkk
19:21
Bill Clinton, first and last black president
windyMagician
19:23
I want to go running but my leg feels weird
windyMagician
19:23
it doesn't hurt its just tingly
Dkk
19:26
It needs more alcohol. You tingle when your nerves need watering.
19:27
try stretching it maybe to see what's up
windyMagician
19:27
stretches make me think it's just soreness
windyMagician
19:27
I'm sober lol
Dkk
19:38
Anyone else get the google notification that your LSD password has been compromised lol. LSD got hacked.
20:48
what.jpg @Dkk
CynicalOops
21:03
You think you just fell out of a coconut tree?
jackfrost11770
21:10
nope dk
CynicalOops
22:37
Calvinamala Harris
jackfrost11770
23:16
should i start using letterboxed again
Dkk
23:25
@jackfrost11770: if you want but like it aint for me
dk do u ever eat at bk
Dkk
23:48
@chickenburgahfart: I would do that in the Army if really desperate for food or if I had to work through lunch. One of the few fast food places I go to.
bk so slept on
Dkk
0:23
I will take In N Out everyday over it when I can though.
texaslawhopefully
1:22
In N Out is not only the best fast food place, but the prices too are fantastic
Dkk
1:27
Indeed, indeed.
BulbasaurNoLikeCardio
7:51
@texaslawhopefully: best prices and only fast food that doesn't make me sick
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