Is the company actively involved in the drilling? Or is this an investment? If this is an investment, and you are not an active participant in the company, then it would be treated as passive income.

Please provide more details on your situation.

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vol2SmileAuthor

The company is actively involved in drilling, they raised funds from investors to do that and has been doing this for several years. I contacted the company, and get the following:

"As a GP investor the loss is an active loss not passive. The investor takes this loss as active because they are theoretically at risk of liability. This falls under section 263c(see tax handbook)".

Since this is my first year doing this, and I don't use a CPA (the company says most of their investors use CPA, so they are not aware of this turboTax issue. But they think being identified by the software as a passive investor is causing me to lose some of the tax credit (coming from IDC deduction should be able to offset most of the income type).

Please let me know how to fix this problem, thanks.

Vanessa A

As you walk through the K-1 entries in TurboTax, you will come to a question asking if you materially participated. Say no.

After that question, Is this an oil or gas property will be asked? Say yes IF your liability is not limited. If your liability IS limited, you do not qualify as an active participant and it will be taxed as a passive activity.