Your investment in a "working interest" in an oil or gas operation is reported on Schedule C (not Schedule E) and is subject to self-employment tax (Schedule SE). All your income and expenses (including IDC) will be entered under that business in TurboTax.
Note: A working interest held directly, or through an entity that did not limit liability, is not a passive activity even if you did not materially participate. A working interest is one in which the owner pays all (or his pro-rata portion) of the development and operating expenses to extract oil or gas from the ground.
For this reason, do not check the "I did not actively participate..." box. The activity of owning a working interest is not a passive activity, regardless of your participation.
The business code for drilling operations is 2123110. You may need this information when setting up your Schedule C business.
Intangible Drilling Costs may be fully deducted as a business expense by electing to do so, or capitalized and recovered through depreciation or depletion. An AMT adjustment is required if costs are not amortized over 60 months.
Due to the complexity of tax law regarding a working interest, you may benefit from the assistance of a local tax professional with expertise in this area.
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