I’m definitely not an expert on oil and gas accounting. That’s a very specialized niche, and I only know enough to be dangerous. But one thing I do know is that you can’t inflate prices on joint ventures to allow partners to get tax credits. That’s tax fraud.
And that’s what one Ohio company and two individuals at that company are alleged to have done. The Justice Department has sued Mid-Con Petroleum of Heath, Ohio, and two principals of that firm, Daniel Weddington and James Earl.
Here’s how the scheme allegedly worked, according to the indictment (as reported by the Newark Advocate). Mid-Con would sell the interests in wells to customers using a payment plan that would ask for just a little bit down. Customers would then promise to pay the rest from profits from the well. Mid-Con would allegedly cash the payment after the customers received the tax credit on their next year’s tax return.
The DOJ news release alleges that Mid-Con inflated prices on the wells by having customers use “sham notes” to pay for most of the purchase price. The customers then allegedly used the inflated price to claim tax credits on intangible drilling costs.
But it gets better. The same intangible drilling costs were allegedly sold to multiple customers so that they could take the credit on the same drilling costs. Think of one oil well, but it got cloned into two or three or more. The DOJ suit alleges that Mid-Con has 200 customers so this is allegedly not a small-time fraud. Indeed, the DOJ believes that these alleged acts have cost the Treasury between $5.4 and $6.9 million.
The DOJ also alleges that Mid-Con has obstructed the IRS investigation into this matter. The DOJ is asking for this alleged scheme to stop. It appears that this “gusher,” if there was one somewhere in Ohio, has been capped.
