Oil and gas partnerships are subject to unique rules that generally treat the partnership as being an aggregation of the partners. However, the regulations in this area are not entirely clear and do not fully address many common issues. This article examines the unique rules established for partnerships that own oil and gas properties. The article addresses the allocations and reallocations of depletable basis to the partners, special allocations of items related to oil and gas properties, and the treatment of disparities between tax basis and the fair market value of properties.

Section 613A was enacted in 1975 and repealed percentage depletion for oil and gas with limited exceptions. Because the depletion allowable under the independent producer and royalty owner exemption is subject to a quantity limitation, Congress apparently believed that each partner should compute this quantity limitation for production at the partner level and include all sources of such production.

The statute was amended in 1976 to provide that all depletion from oil and gas properties must be computed separately by the partners and not the partnership. In adopting this method, Congress chose to view partnerships as an aggregation of the partners rather than as separate entities.