Series 7 Exam Question 258: Answer and Explanation

Question: 258

What is the principal tax benefit for investing as a limited partner in an exploratory oil and gas drilling program?

• A. Tax credits
• B. Depreciation expenses
• C. Recourse loans
• D. Intangible drilling costs

Correct Answer: D

Explanation:

D. Intangible drilling costs (IDCs), the costs involved in actually getting to the oil, provide a tax benefit to investors of an oil and gas exploratory (wildcatting) program. IDCs are items such as labor and surveys. IDCs are deductible expenses in the year in which they occur.