Generally, any geological and geophysical (G&G) expenses paid or incurred in connection with the exploration for, or development of, oil or gas within the United States, shall be allowed as a deduction over a 24-month period beginning with the mid-point of the taxable year in which such expenditures were paid or incurred. If any property with respect to which G&G expenses are paid or incurred is retired or abandoned during the 24-month period described above, no deduction shall be allowed on account of such retirement or abandonment, but the amortization deduction can still be taken. These costs include geologist cost, seismic surveys, gravity meter and magnetic surveys, and the drilling of core holes.
Previously, these costs were only considered to be amortized by exploration and production companies or taxpayers with a mineral interest. However, in a recent tax court case, CGG Americas v. Commissioner, 147 T.C. 78, the court extended the amortization deduction to third-party service providers, even if they are not considered exploration and production companies or have no mineral interests. For certain companies that support exploration and production activities, this may provide an accelerated method to deduct the associated G&G costs incurred and to reduce taxes in the current year.