How to correctly file royalty distribution income from stock ownership in royalty trust companies?

[mkttaxer]

I have 2 main questions about how to report royalty distribution income from stock ownership in royalty trust companies. My wife and I received royalties from our stock ownership in two royalty trust companies. The combined total of royalties from both companies was reported as one entry on line 2 of a 1099-MISC we received from our brokerage. Is this a mistake by our brokerage?

Asking because when I go through the interview, TT asks for the name and address of the company, which doesn't work for this situation. (Also, I cannot find addresses for these companies on their websites; they only provide a trustee name and contact info).
2nd question: TT is entering this on a schedule E in the business section. I was expecting this to be in the personal section since it is just passive income from stock ownership. Is it correct to be in the business section?
Note: in case this matters, my wife has a consulting side business but I do not have a business and the stock ownership is joint. 
3rd question: "Severance taxes" and "Administrative transaction fees" were deducted from our royalty distributions. The net distributions were reinvested in additional stock. Can we report both of these as expenses on Sch E, or are they not deductible, or should they possibly be entered as additional basis for the stock we purchased?
I would appreciate any clarification / instruction you can provide for reporting this correctly.

[tagteam]

Check back here. I'll page @Mike9241.

[Mike9241 · Accepted solution]

I'm pretty sure you did not own stock in those entities (due to getting a 1099-MISC) but owned units in a royalty trust treated as grantor trust for income tax purposes. in this case the royalty info is reported on schedule E page 1- revenue, expenses including depletion. you should have received supplemental info from the trust because, if I am correct, you are entitled to a depletion deduction against the royalty income and that supplemental form will tell how to compute it. it could be cost or % depletion

cost depletion allows you to write off part of the cost of your investment. 

somewhere in that brokerage statement should be the name of the entity or you can look at you monthly brokerage statements. Then you can then search the web using the name to get contact info.  

[mkttaxer]

Correct, we own units not stock in the royalty trusts. The trusts did not send us information and E*TRADE and Morgan Stanley provided little supplemental information about them. However, each trust has a depletion calculator on its website that I can calculate depletion with (cost depletion). Question on that though – can I also deduct depletion on the original units purchased or only on the royalty distributions?

As far as the situation I explained about E*TRADE combining the royalty distributions from both trusts into one income entry on the 1099-MISC (box 2), which is incompatible with reporting the information correctly on Sch E: should I make two separate royalty trust entries on Sch E and divide up the income amount shown in box 2 between the two trust entries in the way it should be? Or will this create an issue with the IRS (too bad there isn’t a comment field on Sch E to explain this kind of thing!)?

Finally, regarding the deductibility of the Severance taxes" and "Administrative transaction fees”:  Are these deductible as expenses on Sch E, or are they not deductible?

If not deductible, can they be added to the basis of the units purchased by reinvestment of the royalty distributions they were charged on?

Thanks for any help you can provide on this.