While the Marcellus and Utica shales present a boon to the Pennsylvania economy, the negotiation of a lease should not be the only legal consideration for a landowner. There are a multitude of estate and income-tax issues to consider both before and after signing a lease and before drilling commences.
Landowners should consult with an attorney knowledgeable in the shale gas area before signing a lease. After signing a lease, a title search is conducted and, upon completion, landowners may receive a cash bonus or advance rental, which is treated as ordinary income for income-tax purposes. Records filed by the gas company with the county will determine the landowner’s decimal interest and percentage of royalties. Once the landowner knows the nature and extent of his or her royalties, planning can be personalized. Landowners should consider which type of entity is best suited to receive bonus payments and royalty interest.
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