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The True family’s use of tax book value formula pricing for
companies that engage in ranching and exploratory drilling for
oil and gas further suggests an intention to transfer interests
for less than adequate and full consideration. Congress has
granted various tax incentives to the oil and gas industry, which
include the current write-off of IDC’s and the deduction of cost
or percentage depletion, whichever is higher. Those incentives
reduce book value for tax purposes, sometimes creating anomalous
results such as True Oil’s negative book value at the time of
Tamma Hatten’s sale. Some of the incentives create only short-
term timing differences between books reported on tax versus
financial accounting bases (e.g., accelerated depreciation),
while others create long-term or permanent differences (compare
current deduction of IDC’s to full cost method of accounting for
exploration costs).
Additionally, tax incentives granted to the farming and
ranching industries also create distortions between tax book
value and underlying fair market value. Because True Ranches
deducted (when paid) feed and other costs incurred to raise
livestock, none of those costs were capitalized as basis.
Therefore, raised livestock had no book value on True Ranches’
tax basis books.
These facts suggest that the True family should have known,
at the time the buy-sell agreements were executed, that tax book
value would probably not bear a reasonable relationship to
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