Capital Gains Treatment on Sales of Oil Properties
Oil properties may qualify as capital assets upon sale, However, as a result of certain fundamental principles peculiar to natural resources special rules are frequently encountered in the determination of treatment to be accorded their sale.
For purposes here, it is assumed that all of the various properties are not stock in trade of the taxpayer or other property of a nature which would properly be included in the inventory of taxpayer or property held by him primarily for sale to customers in the ordinary course of his trade or business.1 In other words, taxpayers classified as dealers are outside the scope of this paper, since the rules pertaining to a dealer of other properties are also applicable to dealers of oil and gas properties.
SALES OF ECONOMIC INTERESTS
Royalty, Net Profit Right, Overriding Royalty and Oil Payment
When all or an undivided portion of taxpayer's interest in these properties is sold, it is accepted that the sales proceeds are subject to capital gains treatment. It is interesting to observe that there is a lack of court decisions (apart from the dealer cases) or published rulings holding that these properties qualify for capital  gains treatment. It is reasonable to assume that this has been caused by the Revenue Service personnel's acceptance of the proposition that these properties fall within the definition of capital assets.
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