Purchased credits not subject to audit

The Tax Division of the Alaska Department of Revenue said in a Nov. 13 advisory that third-party purchasers of oil and gas production tax credits are not subject to future audit adjustments.

The division said it received a request for the advisory from a representative of several oil and gas companies in Alaska.

The issue posed was whether third-party purchasers of AS 43.55.023 tax credits are subject to future audit adjustments resulting from Revenue audit-adjustment of the tax credit applications, or whether future adjustments were the responsibility of the original applicant for the tax credit certificate.

The division said third-party purchasers of AS 43.55.023 tax credits are not subject to future audit adjustments and may apply the full amount of the credit as shown on a certificate of taxes; any adjustments subsequent to issuance of the certificate are the responsibility of the original applicant.

“AS 43.55.023 allows producers and explorers to take an oil and gas production tax credit for qualified capital expenditures,” the division said in advisory bulletin 2009-03.

Under that statute the person entitled to take the credit may apply to Revenue for transferable tax credit certificates for the unused portion of the credit and if Revenue is “reasonably satisfied that the applicant is entitled to a credit,” the department will issue the certificates.

The statute provides that once certificates are issued, the applicant may transfer the certificates and the owner of the certificate may apply the credit irrespective of action Revenue may later take against the original applicant.

If Revenue determines that the applicant for the certificate was not entitled to the amount for which the certificate was issued, the tax liability of the original applicant will be increased by the amount in the credit that exceeded that to which the applicant was entitled.

The division said the advisory “does not apply to the transfer, re-assignment or acquisition of tax credit certificates pursuant to a bankruptcy proceeding or other court-ordered or court-supervised liquidation or reorganization.”

—Petroleum News