Exhibit 8
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OPINION OF
KUNZMAN & BOLLINGER, INC.
AS TO
TAX MATTERS
KUNZMAN & BOLLINGER, INC.
ATTORNEYS-AT-LAW
5100 N. BROOKLINE, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73112
Telephone (405) 942-3501
Fax (405) 942-3527
Exhibit 8
August 25, 2004
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: Atlas America Public #14-2004 Program - Tax Opinion
Gentlemen:
LIMITATIONS ON USE OF TAX OPINION. With respect to any material federal
income tax issue on which we have given an opinion in this letter, our opinion
may not be sufficient for the Participants in any Partnership to use for the
purpose of avoiding penalties relating to a substantial understatement of
income tax under Section 6662(d) of the Internal Revenue Code. Prospective
Participants are urged to seek advice from their own tax advisors regarding
the material federal tax consequences to them of an investment in a
Partnership in light of their individual federal income tax circumstances.
INTRODUCTION. You have requested our opinions on the material federal income
tax issues pertaining to Atlas America Public #14-2004 Program (the
"Program"), a series of up to three natural gas and oil drilling limited
partnerships (each a "Partnership" or collectively the "Partnerships"), all of
which have been or will be formed under the Delaware Revised Uniform Limited
Partnership Act before they begin their drilling activities. The limited
partnerships are Atlas America Public #14-2004 L.P., Atlas America Public #14-
2005(A) L.P., and Atlas America Public #14-2005(B) L.P. We have acted as
Special Counsel to the Program with respect to the offering of Units in the
Partnerships to potential Participants. Atlas Resources, Inc. ("Atlas
Resources") will be the Managing General Partner of each of the Partnerships.
Capitalized terms used and not otherwise defined in this letter have the
respective meanings assigned to them in the form of Amended and Restated
Certificate and Agreement of Limited Partnership for the Partnerships (the
"Partnership Agreement"), which is included as Exhibit (A) to the Prospectus.
BASIS FOR OPINIONS AND MANAGING GENERAL PARTNER'S REPRESENTATIONS. Our
opinions and the "Summary Discussion of the Material Federal Income Tax
Consequences of an Investment in a Partnership" section of this letter are
based in part on our review of:
o the Registration Statement on Form S-1 for the Partnerships as
originally filed with the SEC, including the Prospectus, the
Partnership Agreement and the form of Drilling and Operating
Agreement included as exhibits in the Prospectus;
o other corporate records, certificates, agreements, instruments and
documents as we deemed relevant and necessary to review as a basis
for our opinions; and
o current provisions of the Code, existing, temporary and currently
proposed Treasury Regulations promulgated under the Code, the
legislative history of the Code, existing administrative rulings and
practices of the IRS, and judicial decisions. Future changes in
existing law, which may take effect
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Atlas Resources, Inc.
August 25, 2004
Page 2
retroactively, may cause the actual tax consequences of an
investment in the Partnerships to vary substantially from those set
forth in this letter, and could render our opinions inapplicable.
In addition, many of the material federal income tax consequences of an
investment in a Partnership depend in part on determinations which are
inherently factual in nature. Thus, our opinions are based in part on the
statements made by the Partnerships or the Managing General Partner in the
Prospectus concerning the Partnerships and their proposed activities,
including forward-looking statements. (See "Forward-Looking Statements and
Associated Risks" in the Prospectus.) We also have obtained from you
representations with respect to certain relevant facts relating to the
Partnerships which we have assumed for purposes of our opinions. Based on the
foregoing, we are satisfied that our opinions take into account all relevant
facts, and that the material facts (including our factual assumptions and your
representations) are accurately and completely described in this letter and,
where appropriate, in the Prospectus. Any material inaccuracy in your
representations may render our opinions inapplicable. Included among your
representations are the following:
o The Partnership Agreement will be duly executed by the Managing
General Partner and the Participants in each Partnership and
recorded in all places required under the Delaware Revised Uniform
Limited Partnership Act and any other applicable limited partnership
act. Also, each Partnership, when formed, will operate its business
as described in the Prospectus and in accordance with the terms of
the Partnership Agreement, the Delaware Revised Uniform Limited
Partnership Act, and any other applicable limited partnership act.
o No Partnership will elect to be taxed as a corporation.
o Each Partnership ultimately will own legal title to its Working
Interest in all of its Prospects, although initially title to the
Prospects will be held in the name of the Managing General Partner,
its Affiliates or other third-parties as nominee for the
Partnership, in order to facilitate the acquisition of the Leases.
o Generally, 100% of the Working Interest in each Partnership's
Prospects will be assigned to that Partnership, however, the
Managing General Partner anticipates that each Partnership will
acquire less than 100% of the Working Interest in one or more of its
Prospects.
o The Drilling and Operating Agreement for each Partnership will be
duly executed and will govern the drilling and, if warranted, the
completion and operation of that Partnership's wells.
o Based on information the Managing General Partner has concerning
drilling rates of third-party drilling companies in the Appalachian
Basin, the estimated costs of non-affiliated persons to drill and
equip wells in the Appalachian Basin as reported for 2002 by an
independent industry association which surveyed other non-affiliated
operators in the area, and information it has concerning increases
in drilling costs in the area since then, the amounts that will be
paid by the Partnerships to the Managing General Partner or its
Affiliates under the Drilling and Operating Agreement to drill and
complete each Partnership's wells at Cost plus 15% are reasonable
and competitive amounts that ordinarily would be paid for similar
services in similar transactions between Persons having no
affiliation and dealing with each other "at arms' length."
o Based on the Managing General Partner's experience and its knowledge
of industry practices in the Appalachian Basin, its allocation of
the drilling and completion price to be paid by each Partnership to
the Managing General Partner or its Affiliates as a third-party
general drilling contractor to drill and
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Atlas Resources, Inc.
August 25, 2004
Page 3
complete a well between Intangible Drilling Costs and Tangible Costs
as set forth in "Compensation - Drilling Contracts" in the
Prospectus is reasonable.
o Each Partnership will own only Working Interests in all of its
Prospects, and will elect to deduct currently all Intangible
Drilling Costs.
o Depending primarily on when each Partnership's subscriptions are
received, the Managing General Partner anticipates that Atlas
America Public #14-2004 L.P. will prepay in 2004 most, if not all,
of its Intangible Drilling Costs for drilling activities that will
begin in 2005. In addition, the Managing General Partner anticipates
that Atlas America Public #14-2005(B) L.P., which may close on
December 31, 2005, may prepay in 2005 most, if not all, of its
Intangible Drilling Costs for drilling activities that will begin in
2006. The Managing General Partner, however, anticipates that all of
the wells in Atlas America Public #14-2005(A) L.P., which is
targeted to have its final closing on May 31, 2005 (which is not
binding on the Partnership) will be drilled and completed in 2005
and, therefore, that Partnership will not prepay any Intangible
Drilling Costs in 2005 for drilling activities in 2006.
o Each Partnership will have a calendar year taxable year and use the
accrual method of accounting.
o Based on the Managing General Partner's experience (see "Prior
Activities" in the Prospectus) and the intended operations of each
Partnership, as described in the Prospectus, the Managing General
Partner has determined that the aggregate deductions, including
depletion deductions, and 350% of the aggregate credits, if any,
which will be claimed by the Managing General Partner and the
Participants in each Partnership, will not during the first five tax
years following the funding of each Partnership, exceed twice the
amounts invested by the Managing General Partner and the
Participants in the Partnership. Thus, the Managing General Partner
will not register any of the Partnerships with the IRS as a "tax
shelter."
o The Investor General Partner Units in a Partnership will not be
converted to Limited Partner Units before all of the wells in that
Partnership have been drilled and completed. The Managing General
Partner anticipates that all of the productive wells in each
Partnership will be drilled, completed and placed in service no more
than 12 months after the Partnership's final closing. Thus, the
Managing General Partner anticipates that conversion will be in 2005
for Atlas America Public #14-2004 L.P., and in 2006 for both Atlas
America Public #14-2005(A) L.P. and Atlas America Public #14-2005(B)
L.P.
o No Units in any of the Partnerships will be traded on an established
securities market.
o The principal purpose of each Partnership is to locate, produce and
market natural gas and oil on a profitable basis, apart from tax
benefits, as discussed in the Prospectus. (See, in particular,
"Prior Activities," "Management," "Proposed Activities," and
"Appendix A" in the Prospectus which, when supplemented or amended
for Atlas America Public #14-2005(A) L.P. and Atlas America Public
#14-2005(B) L.P., will cover a portion of the Prospects proposed to
be drilled by each Partnership at the time Units in the respective
Partnership are being offered to prospective Participants.)
o A typical Participant in each Partnership will be a natural person
who purchases Units in the offering and is a U.S. citizen.
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Atlas Resources, Inc.
August 25, 2004
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o The Managing General Partner does not anticipate that any of the
Partnerships will elect to be treated as an "electing large
partnership" under the Code for reporting and audit purposes.
o Although each Partnership may make the ss.754 election under the
Partnership Agreement and current Code provisions, which generally
allows the Partnership to adjust the basis of its property (other
than cash) if its Units are transferred, a Participant dies, or in-
kind property distributions are made by it to its Participants, the
Managing General Partner does not intend to make this election for
any of the Partnerships.
o In any administrative or judicial proceedings with the IRS, the
Managing General Partner, as Tax Matters Partner, will provide the
Participants with notices of the proceedings and other information
as required by the Code and the Partnership Agreement.
o Each Partnership will provide its Participants with the tax
information needed to prepare their income tax returns.
o Due to the restrictions on transfers of Units in the Partnership
Agreement, the Managing General Partner does not anticipate that any
of the Partnerships will ever be considered as terminated under
ss.708(b) of the Code (relating to the transfer of 50% or more of a
Partnership's capital and profits interests in a 12-month period).
o The Managing General Partner and its Affiliates will not make or
arrange financing for potential Participants to use to purchase
Units in a Partnership.
o The Managing General Partner will attempt to eliminate or reduce any
gain to a Partnership from a Farmout, if any.
SCOPE OF REVIEW AND DEFINITION OF "MATERIAL" TAX ISSUE. We have considered
the provisions of 31 CFR, Part 10, ss.10.33 (Treasury Department Circular No.
230) on tax law opinions and we believe that this letter fully and fairly
addresses all of the material federal income tax issues associated with an
investment in a Partnership by a typical Participant. We consider material
those issues which:
o would significantly shelter from federal income taxes a
Participant's income from sources other than the Partnership in
which he invests by providing deductions in excess of the income
from the Partnership in any year;
o are expected to be of fundamental importance to a Participant; or
o could have a significant impact (whether beneficial or adverse) on a
Participant under any reasonably foreseeable circumstances.
Also, in ascertaining that all material federal income tax issues have been
considered, evaluating the merits of those issues, and evaluating whether the
federal tax treatment set forth in our opinions is the proper tax treatment,
we have not taken into account the possibility that a tax return will not be
audited, an issue will not be raised on audit, or an issue may be settled.
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Atlas Resources, Inc.
August 25, 2004
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OPINIONS. Although our opinions express what we believe a court would
probably conclude if presented with the applicable issues, our opinions are
only predictions, and are not guarantees, of the outcome of the particular tax
issues being addressed. There is no assurance that the IRS will not challenge
our interpretations or that the challenge would not be sustained in the courts
and cause adverse tax consequences to the Participants. Taxpayers bear the
burden of proof to support claimed deductions, and our opinions are not
binding on the IRS or the courts. Subject to the foregoing, in our opinion the
following tax treatment with respect to a typical Participant is the proper
tax treatment and will be upheld on the merits if challenged by the IRS and
litigated:
(1) PARTNERSHIP CLASSIFICATION. Each Partnership will be classified as a
partnership for federal income tax purposes, and not as a
corporation. The Partnerships, as such, will not pay any federal
income taxes, and all items of income, gain, loss and deduction of
the Partnerships will be reportable by the Partners in the
Partnership in which they invest.
(2) PASSIVE ACTIVITY CLASSIFICATION.
o Generally, the passive activity limitations on losses under
ss.469 of the Code will apply to the Limited Partners in a
Partnership, but will not apply to the Investor General
Partners in the Partnership before the conversion of the
Investor General Partner Units to Limited Partner Units in the
Partnership.
o A Partnership's income and gain from its natural gas and oil
properties which are allocated to its Limited Partners, other
than net income allocated to converted Investor General
Partners, generally will be characterized as passive activity
income which may be offset by passive activity losses.
o Income or gain attributable to investments of working capital
of a Partnership will be characterized as portfolio income,
which cannot be offset by passive activity losses.
(3) NOT A PUBLICLY TRADED PARTNERSHIP. None of the Partnerships will be
treated as a publicly traded partnership under the Code.
(4) AVAILABILITY OF CERTAIN DEDUCTIONS. Business expenses, including
payments for personal services actually rendered in the taxable year
in which accrued, which are reasonable, ordinary and necessary and
do not include amounts for items such as Lease acquisition costs,
Tangible Costs, organization and syndication fees and other items
which are required to be capitalized, are currently deductible.
(5) INTANGIBLE DRILLING COSTS. Although each Partnership will elect to
deduct currently all Intangible Drilling Costs, each Participant may
still elect to capitalize and deduct all or part of his share of his
Partnership's Intangible Drilling Costs ratably over a 60 month
period as discussed in "- Alternative Minimum Tax," below. Subject
to the foregoing, Intangible Drilling Costs paid by a Partnership
under the terms of bona fide drilling contracts for the
Partnership's wells will be deductible in the taxable year in which
the payments are made and the drilling services are rendered,
assuming the amounts are reasonable consideration based on the
Managing General Partner's representations, and subject to certain
restrictions summarized below, including basis and "at risk"
limitations, and the passive activity loss limitation with respect
to the Limited Partners.
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Atlas Resources, Inc.
August 25, 2004
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(6) PREPAYMENTS OF INTANGIBLE DRILLING COSTS. Depending primarily on
when each Partnership's subscriptions are received, the Managing
General Partner anticipates that Atlas America Public #14-2004 L.P.
will prepay in 2004 most, if not all, of its Intangible Drilling
Costs for drilling activities that will begin in 2005. In addition,
the Managing General Partner anticipates that Atlas America Public
#14-2005(B) L.P., which may close on December 31, 2005, may prepay
in 2005 most, if not all, of its Intangible Drilling Costs for
drilling activities that will begin in 2006. Assuming that the
amounts of any prepaid Intangible Drilling Costs of a Partnership
are reasonable consideration based on the Managing General Partner's
representations, and based in part on the factual assumptions set
forth below, the prepayments of Intangible Drilling Costs will be
deductible in the year in which they are made even though all
Working Interest owners in the well will not be required to prepay
Intangible Drilling Costs, subject to certain restrictions
summarized below, including basis and "at risk" limitations, and the
passive activity loss limitation with respect to the Limited
Partners.
The foregoing opinion is based in part on the assumptions that under
each Partnership's Drilling and Operating Agreement:
o the estimated Intangible Drilling Costs are required to be
prepaid for specified wells to be drilled and, if warranted,
completed;
o the drilling of all of the specified wells and substitute
wells, if any, is required to be, and actually is, begun before
the close of the 90th day after the close of the Partnership's
taxable year in which the prepayments are made, and the wells
are continuously drilled until completed, if warranted, or
abandoned; and
o the required prepayments are not refundable to the Partnership
and any excess prepayments for Intangible Drilling Costs are
applied to Intangible Drilling Costs of the other specified
wells or substitute wells.
(7) DEPLETION ALLOWANCE. The greater of cost depletion or percentage
depletion will be available to qualified Participants as a current
deduction against their share of their Partnership's natural gas and
oil production income, subject to certain restrictions summarized
below.
(8) MACRS. Each Partnership's reasonable costs for equipment placed in
its respective productive wells which cannot be deducted immediately
("Tangible Costs") will be eligible for cost recovery deductions
under the Modified Accelerated Cost Recovery System ("MACRS"),
generally over a seven year "cost recovery period" beginning in the
taxable year each well is drilled, completed and made capable of
production, i.e. placed in service, subject to certain restrictions
summarized below, including basis and "at risk" limitations, and the
passive activity loss limitation in the case of the Limited
Partners.
(9) TAX BASIS OF UNITS. Each Participant's initial adjusted tax basis in
his Units will be the purchase price paid for the Units.
(10) AT RISK LIMITATION ON LOSSES. Each Participant's initial "at risk"
amount in the Partnership in which he invests will be the purchase
price paid for the Units, assuming that:
o any amount borrowed by a Participant and contributed to the
Partnership is not borrowed from a Person who has an interest
in the Partnership, other than as a creditor, or a "related
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Atlas Resources, Inc.
August 25, 2004
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person", as that term is defined in ss.465 of the Code, to a
Person, other than the Participant, having an interest in the
Partnership, other than as a creditor, and the Participant is
severally, primarily, and personally liable for the borrowed
amount; and
o the Participant has not protected himself from loss for amounts
contributed to the Partnership through nonrecourse financing,
guarantees, stop loss agreements or other similar arrangements.
(11) ALLOCATIONS. Assuming the effect of the allocations of income, gain,
loss and deduction, or items thereof, set forth in the Partnership
Agreement, including the allocations of basis and amount realized
with respect to natural gas and oil properties, is substantial in
light of a Participant's tax attributes that are unrelated to the
Partnership in which he invests, the allocations will have
"substantial economic effect" and will govern the Participant's
share of those items to the extent the allocations do not cause or
increase a deficit balance in his Capital Account.
(12) SUBSCRIPTION. No gain or loss will be recognized by the Participants
on payment of their subscriptions to the Partnership in which they
invest.
(13) NO TAX SHELTER REGISTRATION. None of the Partnerships is required to
register with the IRS as a tax shelter. This opinion is based in
part on the Managing General Partner's representations that none of
the Partnerships has a tax shelter ratio greater than 2 to 1 and
each Partnership will be operated as described in the Prospectus.
(14) PROFIT MOTIVE, IRS ANTI-ABUSE RULE AND POTENTIALLY RELEVANT JUDICIAL
DOCTRINES. The Partnerships will possess the requisite profit motive
under ss.183 of the Code, and the IRS anti-abuse rule in Treas. Reg.
ss.1.701-2 and certain potentially relevant judicial doctrines will
not have a material adverse effect on the tax consequences of an
investment in a Partnership by a typical Participant as described in
our opinions. These opinions are based in part on the results of the
previous partnerships sponsored by the Managing General Partner as
set forth in "Prior Activities" in the Prospectus, and the Managing
General Partner's representations. These representations include
that each Partnership will be operated as described in the
Prospectus (see "Management" and "Proposed Activities" in the
Prospectus), and the principal purpose of each Partnership is to
locate, produce and market natural gas and oil on a profitable
basis, apart from tax benefits. These representations are also
supported by the geological evaluations and the other information
for the Partnerships' proposed drilling areas and the specific
Prospects proposed to be drilled Atlas America Public #14-2004 L.P.
which are included in Appendix A to the Prospectus.
(15) OVERALL EVALUATION OF TAX BENEFITS. The tax benefits of each
Partnership, in the aggregate, which are a significant feature of an
investment in a Partnership by a typical Participant will be
realized as contemplated by the Prospectus. This opinion is based on
our conclusion that substantially more than half of the material
federal income tax benefits of each Partnership, in terms of their
financial impact on a typical Participant in the Partnership, will
be realized if challenged by the IRS. The discussion in the
Prospectus under the caption "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES," insofar as it contains statements of federal income
tax law, is correct in all material respects.
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Atlas Resources, Inc.
August 25, 2004
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SUMMARY DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN A PARTNERSHIP
IN GENERAL. Our tax opinions are limited to those set forth above. The
following is a summary of all of the material federal income tax consequences
of the purchase, ownership and disposition of a Partnership's Units which will
apply to typical Participants in the Partnership. Except as otherwise noted
below, however, different tax considerations may apply to particular
Participants, such as corporations, trusts, partnerships, foreign persons, and
other prospective Participants which are subject to special treatment under
federal income tax laws or are not treated as individuals for federal income
tax purposes. Also, the proper treatment of the tax attributes of a
Partnership by a typical Participant on his individual federal income tax
return may vary from that by another typical Participant. This is because the
practical utility of the tax aspects of any investment depends largely on each
Participant's particular income tax position in the year in which items of
income, gain, loss, deduction or credit are properly taken into account in
computing the Participant's federal income tax liability. In addition, the IRS
may challenge the deductions claimed by a Partnership or a Participant, or the
taxable year in which the deductions are claimed, and no guaranty can be given
that the challenge would not be upheld if litigated. Thus, each prospective
Participant is urged to seek qualified, professional assistance in evaluating
the potential tax consequences to him of an investment in a Partnership with
specific reference to the Participant's own tax situation.
PARTNERSHIP CLASSIFICATION. For federal income tax purposes a partnership is
not a taxable entity. Thus, the partners, rather than the partnership, receive
all items of income, gain, loss, deduction, credit and tax preference from the
operations engaged in by the partnership. A business entity with two or more
members is classified for federal tax purposes as either a corporation or a
partnership. Treas. Reg. ss.301.7701-2(a). A corporation includes a business
entity organized under a State statute which describes the entity as a
corporation, body corporate, body politic, joint-stock company or joint-stock
association. Treas. Reg. ss.301.7701-2(b). Each Partnership, however, will be
formed as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act which describes each Partnership as a "partnership." Thus,
each Partnership automatically will be classified as a partnership unless it
elects to be classified as a corporation. In this regard, the Managing General
Partner has represented that none of the Partnerships will elect to be taxed
as a corporation.
LIMITATIONS ON PASSIVE ACTIVITIES. Under the passive activity rules of ss.469
of the Code, all income of a taxpayer who is subject to the rules is
categorized as:
o income from passive activities such as limited partners' interests
in a business;
o active income such as salary, bonuses, etc.; or
o portfolio income. "Portfolio income" consists of:
o interest, dividends and royalties unless earned in the ordinary
course of a trade or business; and
o gain or loss not derived in the ordinary course of a trade or
business on the sale of property that generates portfolio
income or is held for investment.
Losses generated by passive activities can offset only passive income and
cannot be applied against active income or portfolio income.
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August 25, 2004
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The passive activity rules apply to individuals, estates, trusts, closely
held C corporations which generally are corporations with five or fewer
individuals who own directly or indirectly more than 50% of the stock, and
personal service corporations other than corporations where the owner-
employees together own less than 10% of the stock. However, a closely held C
corporation, other than a personal service corporation, may use passive losses
and credits to offset taxable income of the company figured without regard to
passive income or loss or portfolio income.
Passive activities include any trade or business in which the taxpayer does
not materially participate on a regular, continuous, and substantial basis.
Under the Partnership Agreement, Limited Partners will not have material
participation in the Partnership in which they invest and generally will be
subject to the passive activity limitations.
Investor General Partners also do not materially participate in the
Partnership in which they invest. However, because each Partnership will own
only Working Interests in its wells and Investor General Partners will not
have limited liability under the Delaware Revised Uniform Limited Partnership
Act until they are converted to Limited Partners, their deductions generally
will not be treated as passive deductions under the Code before the
conversion. I.R.C. ss.469(c)(3). (See "- Conversion from Investor General
Partner to Limited Partner," below.) However, if an Investor General Partner
invests in a Partnership through an entity which limits his liability, for
example, a limited partnership in which he is not a general partner, a limited
liability company or an S corporation, then generally he will be subject to
the passive activity limitations the same as a Limited Partner. Contractual
limitations on the liability of Investor General Partners under the
Partnership Agreement, however, such as insurance, limited indemnification by
the Managing General Partner, etc. will not cause Investor General Partners to
be subject to the passive activity limitations.
A Limited Partner's "at risk" amount is reduced by losses allowed under
ss.465 of the Code even if the losses are suspended by the passive activity loss
limitation. (See "- 'At Risk' Limitation For Losses," below.) Similarly, a
Limited Partner's basis is reduced by deductions even if the deductions are
suspended under the passive activity loss limitation. (See "- Tax Basis of
Units," below.)
Suspended losses may be carried forward indefinitely, but not back, and used
to offset future years' passive activity income. A suspended loss is allowed
in full when the entire interest in a passive activity is sold to an unrelated
third-party in a taxable transaction and in part on the disposition of
substantially all of the interest in a passive activity if the suspended loss
as well as current gross income and deductions can be allocated to the part
disposed of with reasonable certainty. In an installment sale, passive losses
become available in the same ratio that gain recognized each year bears to the
total gain on the sale.
Any suspended losses remaining at a taxpayer's death are allowed as
deductions on the decedent's final return, subject to a reduction to the
extent the basis of the property in the hands of the transferee exceeds the
property's adjusted basis immediately before the decedent's death. If a
taxpayer makes a gift of his entire interest in a passive activity, the basis
in the property of the person receiving the gift is increased by any suspended
losses and no deductions are allowed. If the interest is later sold at a loss,
the basis in the property of the person receiving the gift is limited to the
fair market value on the date the gift was made.
PUBLICLY TRADED PARTNERSHIP RULES. Net losses of a partner from each
publicly traded partnership are suspended and carried forward to be netted
against income from that publicly traded partnership only. In addition, net
losses from other passive activities may not be used to offset net passive
income from a publicly traded partnership. I.R.C. ss.ss.469(k)(2) and 7704. A
publicly traded partnership is a partnership whose interests are traded on an
established securities market or that are readily tradable on either a
secondary market or the substantial equivalent of a secondary market. However,
in our opinion none of the Partnerships will be treated as a publicly traded
partnership under the Code. This opinion is based primarily on the substantial
restrictions in the Partnership Agreement on each Participant's ability to
transfer his Units in the Partnership in which he invests. See
"Transferability of Units - Restrictions on
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August 25, 2004
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Transfer Imposed by the Securities Laws, the Tax Laws and the Partnership
Agreement" in the Prospectus.) Also, the Managing General Partner has
represented that no Partnership's Units will be traded on an established
securities market.
CONVERSION FROM INVESTOR GENERAL PARTNER TO LIMITED PARTNER. If a
Participant invests in a Partnership as an Investor General Partner, then his
share of the Partnership's deduction for Intangible Drilling Costs in the year
in which he invests will not be subject to the passive activity loss
limitation because the Investor General Partner Units will not be converted by
the Managing General Partner to Limited Partner Units until after all of the
Partnership's wells have been drilled and completed. In this regard, the
Managing General Partner has represented that it anticipates that all of the
productive wells in each Partnership will be drilled, completed and placed in
service no more than 12 months after the Partnership's final closing. Thus,
the Managing General Partner anticipates that conversion will be in 2005 for
Atlas America Public #14-2004 L.P., and in 2006 for both Atlas America Public
#14-2005(A) L.P. and Atlas America Public #14-2005(B) L.P. (See "Actions to be
Taken by Managing General Partner to Reduce Risks of Additional Payments by
Investor General Partners" in the Prospectus and "- Drilling Contracts,"
below.) After the Investor General Partner Units have been converted to
Limited Partner Units, each former Investor General Partner will have limited
liability as a limited partner under the Delaware Revised Uniform Limited
Partnership Act with respect to his interest in his Partnership's activities
after the date of the conversion.
Concurrently, the former Investor General Partner will become subject to the
passive activity rules as a limited partner. However, the former Investor
General Partner previously will have received a non-passive loss as an
Investor General Partner in the year in which he invested in a Partnership as
a result of the Partnership's deduction for Intangible Drilling Costs.
Therefore, the Code requires that his net income from the Partnership's wells
after his conversion to a limited partner must continue to be characterized as
non-passive income which cannot be offset with passive losses. I.R.C.
ss.469(c)(3)(B). The conversion of the Investor General Partner Units into
Limited Partner Units should not have any other adverse tax consequences on an
Investor General Partner unless his share of any Partnership liabilities is
reduced as a result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157. A
reduction in a partner's share of liabilities is treated as a constructive
distribution of cash to the partner, which reduces the basis of the partner's
interest in the partnership and is taxable to the extent it exceeds his basis.
(See "- Tax Basis of Units," below.)
TAXABLE YEAR. Each Partnership intends to adopt a calendar year taxable year.
I.R.C. ss.ss.706(a) and (b). The taxable year of a Partnership is important to a
Participant because the Partnership's deductions, income and other items of tax
significance must be taken into account in computing the Participant's taxable
income for his taxable year within or with which the Partnership's taxable year
ends. The tax year of a partnership generally must be the tax year of one or
more of its partners who have an aggregate interest in partnership profits and
capital of greater than 50%.
METHOD OF ACCOUNTING. Each Partnership will use the accrual method of
accounting for federal income tax purposes. I.R.C. ss.448(a). Under the accrual
method of accounting, income is taken into account for the year in which all
events have occurred which fix the right to receive it and the amount is
determinable with reasonable accuracy, rather than the time of receipt.
Consequently, Participants in a Partnership may have income tax liability
resulting from the Partnership's accrual of income in one tax year that it
does not receive until the next tax year. Expenses are deducted for the year
in which all events have occurred that determine the fact of the liability,
the amount is determinable with reasonable accuracy and the economic
performance test is satisfied. Under ss.461(h) of the Code, if the liability of
the taxpayer arises out of the providing of services or property to the
taxpayer by another person, economic performance occurs as the services or
property, respectively, are provided. If the liability of the taxpayer arises
out of the use of the property by the taxpayer, economic performance occurs as
the property is used.
o A special rule in the Code, however, provides that there is economic
performance in the current taxable year with respect to amounts paid
by a Partnership in that taxable year for Intangible Drilling Costs
of drilling and completing a natural gas or oil well so long as the
drilling of the well begins before the close
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 11
of the 90th day after the close of the Partnership's taxable year.
I.R.C. ss.461(i). (See "- Drilling Contracts," below, for a discussion
of prepaid Intangible Drilling Costs by Atlas America Public #14-
2004 L.P. and Atlas America Public #14-2005(B) L.P.)
2004 AND 2005 EXPENDITURES. The Managing General Partner anticipates that
all of the subscription proceeds of each Partnership will be expended in the
year in which its Participants invest in that Partnership, and the related
income and deductions, including the deduction for Intangible Drilling Costs,
will be reflected on its Participants' federal income tax returns for that
period. (See "Capitalization and Source of Funds and Use of Proceeds" and
"Participation in Costs and Revenues" in the Prospectus.)
Depending primarily on when each Partnership's subscription proceeds are
received, the Managing General Partner anticipates that Atlas America Public
#14-2004 L.P. will prepay in 2004 most, if not all, of its Intangible Drilling
Costs for drilling activities that will begin in 2005. In addition, the
Managing General Partner anticipates that Atlas America Public #14-2005(B)
L.P., which may close on December 31, 2005, may prepay in 2005 most, if not
all, of its Intangible Drilling Costs for drilling activities that will begin
in 2006. The deductibility of these advance payments in the year in which a
Participant invests in the Partnership cannot be guaranteed. (See "- Drilling
Contracts," below.) Finally, the Managing General Partner anticipates that all
of the wells in Atlas America Public #14-2005(A) L.P., which is targeted to
have its final closing on May 31, 2005 (which is not binding on the
Partnership), will be drilled and completed in 2005, and, therefore, it will
not prepay any Intangible Drilling Costs in 2005 for drilling activities in
2006.
AVAILABILITY OF CERTAIN DEDUCTIONS. Ordinary and necessary business
expenses, including reasonable compensation for personal services actually
rendered, are deductible in the year incurred. Treasury Regulation ss.1.162-
7(b)(3) provides that reasonable compensation is only the amount as would
ordinarily be paid for like services by like enterprises under like
circumstances. The Managing General Partner has represented that the amounts
payable by each Partnership to the Managing General Partner and its
Affiliates, including the amounts payable to the Managing General Partner or
its Affiliates as general drilling contractor, are reasonable amounts which
would ordinarily be paid for similar services in similar transactions. (See
"Compensation" in the Prospectus and "- Drilling Contracts," below.) The fees
paid to the Managing General Partner and its Affiliates by the Partnerships
will not be currently deductible, however, to the extent it is determined by
the IRS or the courts that they are:
o in excess of reasonable compensation;
o properly characterized as organization or syndication fees or other
capital costs such as the acquisition cost of the Leases; or
o not "ordinary and necessary" business expenses.
(See "- Partnership Organization and Offering Costs," below.) In the event of
an audit, payments to the Managing General Partner and its Affiliates by a
Partnership will be scrutinized by the IRS to a greater extent than payments
to an unrelated party.
INTANGIBLE DRILLING COSTS. Assuming a proper election and subject to the
limitations on deductions and losses summarized elsewhere in this letter,
including the basis and "at risk" limitations, and the passive activity loss
limitation in the case of Limited Partners, each Participant will be entitled
to deduct his share of his Partnership's Intangible Drilling Costs, which
include items which do not have salvage value, such as labor, fuel, repairs,
supplies and hauling necessary to the drilling of a well. I.R.C. ss.263(c),
Treas. Reg. ss.1.612-4(a). If a Partnership re-enters an existing well as
described in "Proposed Activities - Primary Areas of Operations -
Mississippian/Upper Devonian Sandstone
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 12
Reservoirs, Fayette County, Pennsylvania" in the Prospectus, the costs of
deepening the well and completing it to deeper reservoirs, if any, (other than
Tangible Costs) generally will be treated as Intangible Drilling Costs.
Drilling and completion costs of a re-entry well which are not related to
deepening the well, if any, however, other than Tangible Costs, generally will
be treated as operating expenses which should be expensed in the taxable year
they are incurred for federal income tax purposes. Those costs (other than
Tangible Costs) of the re-entry well, however, will not be characterized as
Operating Costs, instead of Intangible Drilling Costs, for purposes of
allocating the payment of the costs between the Managing General Partner and
the Participants under the Partnership Agreement. (See "Participation in Costs
and Revenues" in the Prospectus, "- Limitations on Passive Activities," above
and "- Tax Basis of Units" and "- `At Risk' Limitation For Losses," below.)
These deductions are subject to recapture as ordinary income rather than
capital gain on the sale or other taxable disposition of the property or a
Participant's Units. (See "- Sale of the Properties" and "- Disposition of
Units," below.) Also, productive-well Intangible Drilling Costs may subject a
Participant to an alternative minimum tax in excess of regular tax unless the
Participant elects to deduct all or part of these costs ratably over a 60
month period. (See "- Alternative Minimum Tax," below.)
Under the Partnership Agreement, not less than 90% of the subscription
proceeds received by each Partnership from its Participants will be used to
pay 100% of the Partnership's Intangible Drilling Costs of drilling and
completing its wells. (See "Application of Proceeds" and "Participation in
Costs and Revenues" in the Prospectus.) The IRS could challenge the
characterization of a portion of these costs as currently deductible
Intangible Drilling Costs and recharacterize the costs as some other item
which may not be currently deductible. However, this would have no effect on
the allocation and payment of the Intangible Drilling Costs by the
Participants under the Partnership Agreement.
In the case of corporations, other than S corporations, which are
"integrated oil companies," the amount allowable as a deduction for Intangible
Drilling Costs in any taxable year is reduced by 30%. I.R.C. ss.291(b)(1).
Integrated oil companies are:
o those taxpayers who directly or through a related person engage in
the retail sale of natural gas and oil and whose gross receipts for
the taxable year from such activities exceed $5,000,000; or
o those taxpayers and related persons who have refinery production in
excess of 50,000 barrels on any day during the taxable year. I.R.C.
ss.291(b)(4).
Amounts disallowed as a current deduction are allowable as a deduction ratably
over the 60-month period beginning with the month in which the costs are paid or
incurred. The Partnerships will not be integrated oil companies.
Each Participant is urged to consult with his own personal tax advisor
concerning the tax benefits to him of the deduction for Intangible Drilling
Costs in the Partnership in which he invests in light of the Participant's own
tax situation.
DRILLING CONTRACTS. Each Partnership will enter into the Drilling and
Operating Agreement with the Managing General Partner or its Affiliates,
acting as a third-party general drilling contractor, to drill and complete the
Partnership's wells on a Cost plus 15% basis. For its services as general
drilling contractor, the Managing General Partner anticipates that on average
over all of the wells drilled and completed by each Partnership, assuming a
100% Working Interest in each well, it will have reimbursement of general and
administrative overhead of approximately $12,722 per net well and a profit of
15% (approximately $22,558) per net well, with respect to the Intangible
Drilling Costs and the portion of Tangible Costs paid by the Participants as
described in "Compensation - Drilling Contracts" in the Prospectus. However,
the actual cost of drilling and completing the wells may be more or less than
the estimated amount, due primarily to the uncertain nature of drilling
operations, and the Managing General Partner's profit per net well also could
be more or less than the dollar amount estimated by the Managing General
Partner.
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 13
The Managing General Partner believes the prices under the Drilling and
Operating Agreement are competitive in the proposed areas of operation.
Nevertheless, the amount of the profit realized by the Managing General
Partner under the Drilling and Operating Agreement could be challenged by the
IRS as being unreasonable and disallowed as a deductible Intangible Drilling
Cost. (See "- Intangible Drilling Costs," above, and "Compensation" and
"Proposed Activities" in the Prospectus.)
The Managing General Partner anticipates that Atlas America Public #14-
2005(A) L.P., which has a targeted final closing date of May 31, 2005 (which
is not binding on the Partnership), will drill and complete all of its wells
in 2005 and, therefore, will not prepay in 2005 any of its Intangible Drilling
Costs for drilling activities that will begin in 2006. However, depending
primarily on when each Partnership's subscription proceeds are received, the
Managing General Partner further anticipates that Atlas America Public #14-
2004 L.P. will prepay in 2004 most, if not all, of its Intangible Drilling
Costs for drilling activities that will begin in 2005, and Atlas America
Public #14-2005(B) L.P., which may close on December 31, 2005, may prepay in
2005 most, if not all, of its Intangible Drilling Costs for drilling
activities that will begin in 2006. In Keller v. Commissioner, 79 T.C. 7
(1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court applied a two-part
test for the current deductibility of prepaid intangible drilling and
development costs. The test is:
o the expenditure must be a payment rather than a refundable deposit;
and
o the deduction must not result in a material distortion of income
taking into substantial consideration the business purpose aspects
of the transaction.
The drilling partnership in Keller entered into footage and daywork drilling
contracts which permitted it to terminate the contracts at any time without
default by the driller, and receive a return of the prepaid amounts less
amounts earned by the driller. The Tax Court found that the right to receive,
by unilateral action, a refund of the prepayments on the footage and daywork
drilling contracts rendered the prepayments deposits instead of payments.
Therefore, the prepayments were held to be nondeductible in the year they were
paid to the extent they had not been earned by the driller. The Tax Court
further found that the drilling partnership failed to show a convincing
business purpose for prepayments under the footage and daywork drilling
contracts.
The drilling partnership in Keller also entered into turnkey drilling
contracts which permitted it to stop work under the contract at any time and
apply the unearned balance of the prepaid amounts to another well to be
drilled on a turnkey basis. The Tax Court found that these prepayments
constituted "payments" and not nondeductible deposits, despite the right of
substitution. Further, the Tax Court noted that the turnkey drilling contracts
obligated "the driller to drill to the contract depth for a stated price
regardless of the time, materials or expenses required to drill the well,"
thereby locking in prices and shifting the risks of drilling from the drilling
partnership to the driller. Since the drilling partnership, a cash basis
taxpayer, received the benefit of the turnkey obligation in the year of
prepayment, the Tax Court found that the amounts prepaid on turnkey drilling
contracts clearly reflected income and were deductible in the year of
prepayment.
In Leonard T. Ruth, TC Memo 1983-586, a drilling program entered into nine
separate turnkey contracts with a general contractor, the parent corporation
of the drilling program's corporate general partner, to drill nine program
wells. Each contract identified the prospect to be drilled, stated the turnkey
price, and required the full price to be paid in 1974. The program paid the
full turnkey price to the general contractor on December 31, 1974; the receipt
of which was found by the court to be significant in the general contractor's
financial planning. The program had no right to receive a refund of any of the
payments. The actual drilling of the nine wells was subcontracted by the
general contractor to independent contractors who were paid by the general
contractor in accordance with their individual contracts. The drilling of all
wells commenced in 1975 and all wells were completed that year. The amount
paid by the
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 14
general contractor to the independent driller for its work on the nine wells
was approximately $365,000 less than the amount prepaid by the program to the
general contractor. The program claimed a deduction for intangible drilling
and development costs in 1974. The IRS challenged the timing of the deduction,
contending that there was no business purpose for the payments in 1974, that
the turnkey arrangements were merely "contracts of convenience" designed to
create a tax deduction in 1974, and that the turnkey contracts constituted
assets having a life beyond the taxable year and that to allow a deduction for
their entire costs in 1974 distorted income. The Tax Court, relying on Keller,
held that the program could deduct the full amount of the payments in 1974.
The court found that the program entered into turnkey contracts, paid a
premium to secure the turnkey obligations, and thereby locked in the drilling
price and shifted the risks of drilling to the general contractor. Further,
the court found that by signing and paying the turnkey obligation, the program
got its bargained-for benefit in 1974, therefore the deduction of the payments
in 1974 clearly reflected income.
Each Partnership will attempt to comply with the guidelines set forth in
Keller with respect to any prepaid Intangible Drilling Costs. In the year in
which a Participant invests in a Partnership, the Drilling and Operating
Agreement will require the Partnership to prepay all of the Partnership's
share of the estimated Intangible Drilling Costs, and all of the Participants'
share of the Partnership's share of the estimated Tangible Costs, for drilling
and completing specified wells, the drilling of which may begin in the
following year. These prepayments of Intangible Drilling Costs should not
result in a loss of a current deduction for the Intangible Drilling Costs if:
o there is a legitimate business purpose for the required prepayment;
o the contract is not merely a sham to control the timing of the
deduction; and
o there is an enforceable contract of economic substance.
The Drilling and Operating Agreement will require each Partnership to prepay
the Managing General Partner's estimate of the Intangible Drilling Costs and
the Participants' share of the Tangible Costs to drill and complete the wells
specified in the Drilling and Operating Agreement in order to enable the
Operator to:
o begin site preparation for the wells;
o obtain suitable subcontractors at the then current prices; and
o insure the availability of equipment and materials.
Under the Drilling and Operating Agreement excess prepaid Intangible Drilling
Costs, if any, will not be refundable to a Partnership, but instead will be
applied only to Intangible Drilling Cost overruns, if any, on the other
specified wells being drilled or completed by the Partnership or to Intangible
Drilling Costs to be incurred by the Partnership in drilling and completing
substitute wells. Under Keller, a provision for substitute wells should not
result in the prepayments being characterized as refundable deposits.
The likelihood that prepayments of Intangible Drilling Costs will be
challenged by the IRS on the grounds that there is no business purpose for the
prepayments is increased if prepayments are not required with respect to 100%
of the Working Interest in the well. The Managing General Partner anticipates
that less than 100% of the Working Interest will be acquired by each
Partnership in one or more of its wells, and prepayments of Intangible
Drilling Costs will not be required of the other owners of Working Interests
in those wells. In our view, however, a legitimate business purpose for the
required prepayments of Intangible Drilling Costs by the Partnerships may
exist under the guidelines set forth in Keller, even though prepayments are
not required by the drilling contractor with respect to a portion of the
Working Interest in the wells.
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 15
In addition, a current deduction for prepaid Intangible Drilling Costs is
available only if the drilling of the wells begins before the close of the
90th day after the close of the taxable year in which the prepayment was made.
I.R.C. ss.461(i). (See "- Method of Accounting," above.) Under the Drilling and
Operating Agreement, the Managing General Partner as operator and general
drilling contractor must begin drilling each of the prepaid wells before the
close of the 90th day after the close of the Partnership's taxable year in
which the prepayment was made, which is March 31, 2005 for Atlas America
Public #14-2004 L.P. and March 31, 2006 for Atlas America Public #14-2005(B)
L.P. However, the drilling of any Partnership Well may be delayed due to
circumstances beyond the control of the Managing General Partner or the
drilling subcontractors. These circumstances include, for example:
o the unavailability of drilling rigs;
o decisions of third-party operators to delay drilling the wells;
o poor weather conditions;
o inability to obtain drilling permits or access right to the drilling
site; or
o title problems;
and the Managing General Partner will have no liability to any Partnership or
its Participants if these types of events delay beginning the drilling of the
prepaid wells past the close of the 90th day after the close of the
Partnership's taxable year. If the drilling of a prepaid Partnership Well does
not begin before the close of the 90th day after the close of the
Partnership's taxable year in which the prepayment was made, deductions
claimed by a Participant for prepaid Intangible Drilling Costs for the well in
the year in which the Participant invests in the Partnership would be
disallowed and deferred to the next taxable year when the well is actually
drilled.
No assurance can be given that on audit the IRS would not disallow the
current deductibility of a portion or all of any prepaid Intangible Drilling
Costs under a Partnership's drilling contracts, thereby decreasing the amount
of the Participants' deductions in the Partnership for the year in which they
invest in the Partnership, or that the challenge would not ultimately be
sustained. In the event of disallowance, the deduction for prepaid Intangible
Drilling Costs would be available in the next year when the wells are actually
drilled.
DEPLETION ALLOWANCE. Proceeds from the sale of each Partnership's natural
gas and oil production will constitute ordinary income. A certain portion of
that income will not be taxable under the depletion allowance which permits
the deduction from gross income for federal income tax purposes of either the
percentage depletion allowance or the cost depletion allowance, whichever is
greater. I.R.C. ss.ss.611, 613 and 613A. These deductions are subject to
recapture as ordinary income rather than capital gain on the sale or other
taxable disposition of the property or a Participant's Units. (See " - Sale of
the Properties" and " - Disposition of Units," below.)
Cost depletion for any year is determined by dividing the adjusted tax basis
for the property by the total units of natural gas or oil expected to be
recoverable from the property and then multiplying the resultant quotient by
the number of units actually sold during the year. Cost depletion cannot
exceed the adjusted tax basis of the property to which it relates.
Percentage depletion generally is available to taxpayers other than
"integrated oil companies" as that term is defined in "- Intangible Drilling
Costs," above, which does not include the Partnerships. Percentage depletion
is based on a Participant's share of his Partnership's gross production income
from its natural gas and oil properties. Generally,
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 16
percentage depletion is available with respect to 6 million cubic feet of
average daily production of natural gas or 1,000 barrels of average daily
production of domestic crude oil. Taxpayers who have both natural gas and oil
production may allocate the production limitation between the production.
The rate of percentage depletion is 15%. However, percentage depletion for
marginal production increases 1%, up to a maximum increase of 10%, for each
whole dollar that the domestic wellhead price of crude oil for the immediately
preceding year is less than $20 per barrel without adjustment for inflation.
I.R.C. ss.613A(c)(6). The term "marginal production" includes natural gas and
oil produced from a domestic stripper well property, which is defined as any
property which produces a daily average of 15 or less equivalent barrels of
oil, which is equivalent to 90 mcf of natural gas, per producing well on the
property in the calendar year. Most, if not all, of each Partnership's wells
will be marginal producing wells under this definition in the Code and will
qualify for these potentially higher rates of percentage depletion. The rate
of percentage depletion for marginal production in 2004 is 15%. This rate may
fluctuate from year to year depending on the price of oil, but will not be
less than the statutory rate of 15% nor more than 25%.
Also, percentage depletion:
(i) may not exceed 100% of the net income from each natural gas and
oil property before the deduction for depletion; and
(ii) is limited to 65% of the taxpayer's taxable income for a year
computed without regard to percentage depletion, net operating
loss carry-backs and capital loss carry-backs.
Availability of percentage depletion must be computed separately by each
Participant and not by a Partnership or for Participants in a Partnership as a
whole. Potential Participants are urged to consult their own tax advisors with
respect to the availability of percentage depletion to them.
DEPRECIATION - MODIFIED ACCELERATED COST RECOVERY SYSTEM ("MACRS"). Tangible
Costs and the related depreciation deductions of each Partnership generally
are charged and allocated under the Partnership Agreement 66% to the Managing
General Partner and 34% to the Participants in the Partnership. However, if
the total Tangible Costs for all of the Partnership's wells that would be
charged to the Participants exceeds an amount equal to 10% of the
Partnership's subscription proceeds, then the excess, together with the
related depreciation deductions, will be charged and allocated to the Managing
General Partner. Most of each Partnership's equipment costs will be recovered
through depreciation deductions over a seven year cost recovery period using
the 200% declining balance method, with a switch to straight-line to maximize
the deduction, beginning in the taxable year the equipment is "placed in
service" by the Partnership as discussed below. I.R.C. ss.168(c). In the case
of a short tax year the MACRS deduction is prorated on a 12-month basis. No
distinction is made between new and used property and salvage value is
disregarded. All property assigned to the 7-year class generally is treated as
placed in service, or disposed of, in the middle of the year. All of these
cost recovery deductions claimed by the Partnerships and their respective
Participants are subject to recapture as ordinary income rather than capital
gain on the sale or other taxable disposition of the property or a
Participant's Units. (See "- Sale of the Properties" and "- Disposition of
Units," below.) Except as discussed below, depreciation for alternative
minimum tax purposes is computed using the 150% declining balance method,
switching to straight-line, for most personal property.
Notwithstanding the foregoing, under the Jobs and Growth Tax Relief
Reconciliation Act of 2003 ("2003 Tax Act"), for federal income tax purposes
Atlas America Public #14-2004 L.P., but not Atlas America Public #14-2005(A)
L.P. or Atlas America Public #14-2005(B) L.P., will be entitled to an
additional first-year depreciation allowance based on 50% of the adjusted
basis of its "qualified" Tangible Costs, if any. For this purpose, the
Partnership's "qualified" Tangible Costs means its equipment costs for
productive wells which are completed and made capable of production, i.e.
placed in service, before January 1, 2005. I.R.C. ss.168(k)(2) and (4). Thus,
this additional first-year depreciation allowance will not be available for
wells which are placed in service in 2005, even though the Participants' share
of the
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 17
Partnership's Tangible Costs for the equipment in the wells is prepaid in
2004, because the special rule allowing a current deduction for prepaid
Intangible Drilling Costs does not apply to prepaid equipment costs. (See
"- Method of Accounting" and "- Drilling Contracts," above.) In addition, the
basis of the partnership's "qualified" equipment will be reduced by the
additional 50% first-year depreciation allowance for purposes of calculating
the regular MACRS depreciation allowances beginning in 2004. Also, if a
Participant invests in Atlas America Public #14-2004 L.P., the Participant
will not incur any alternative minimum tax adjustment with respect to his
share of the Partnership's additional 50% first-year depreciation allowance,
nor any of its other depreciation deductions for the Tangible Costs of
qualified equipment it places in any productive wells that are drilled,
completed and placed in service in 2004. I.R.C. ss.168(k)(2)(F).
LEASE ACQUISITION COSTS AND ABANDONMENT. Lease acquisition costs, together
with the related cost depletion deduction and any abandonment loss for Lease
costs, are allocated under the Partnership Agreement 100% to the Managing
General Partner, which will contribute the Leases to each Partnership as a
part of its Capital Contribution.
TAX BASIS OF UNITS. A Participant's share of his Partnership's losses is
allowable only to the extent of the adjusted basis of his Units at the end of
the Partnership's taxable year. I.R.C. ss.704(d). The adjusted basis of the
Participant's Units will be adjusted, but not below zero, for any gain or loss
to the Participant from a sale or other taxable disposition by the Partnership
of a natural gas and oil property, and will be increased by his:
(i) cash subscription payment;
(ii) share of Partnership income; and
(iii)share, if any, of Partnership debt.
The adjusted basis of a Participant's Units will be reduced by his:
(i) share of Partnership losses;
(ii) share of Partnership expenditures that are not deductible in
computing its taxable income and are not properly chargeable to
capital account;
(iii)depletion deductions, but not below zero; and
(iv) cash distributions from the Partnership. I.R.C. ss.ss.705, 722 and
742.
The reduction in a Participant's share of Partnership liabilities, if any,
is considered a cash distribution to the Participant. Although Participants
will not be personally liable on any Partnership loans, Investor General
Partners will be liable for other obligations of the Partnership. (See "Risk
Factors - Risks Related to an Investment In a Partnership - If You Choose to
Invest as a General Partner, Then You Have Greater Risk Than a Limited
Partner" in the Prospectus.) Should cash distributions to a Participant from
his Partnership exceed the tax basis of the Participant's Units, taxable gain
would result to the Participant to the extent of the excess.
(See "- Distributions From a Partnership," below.)
"AT RISK" LIMITATION FOR LOSSES. Subject to the limitations on "passive
losses" generated by a Partnership in the case of Limited Partners, and a
Participant's basis in his Units, each Participant generally may use his share
of the Partnership's losses to offset income from other sources. (See
"-Limitations on Passive Activities" and "- Tax Basis of Units," above.)
However, a Participant, other than a corporation which is neither an S
corporation nor a corporation in which five or fewer individuals own more than
50% of the stock, who sustains a loss in connection with a Partnership's natural
gas and oil activities may deduct the loss only to the extent of the amount he
has "at risk" in the Partnership at
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 18
the end of a taxable year. I.R.C. ss.465. "Loss" means the excess of allowable
deductions for a taxable year from a Partnership over the amount of income
actually received or accrued by the Participant during the year from the
Partnership.
A Participant's initial "at risk" amount generally is limited to the amount
of money he pays for his Units. However, any amounts borrowed by a Participant
to buy his Units will not be considered "at risk" if the amounts are borrowed
from any person who has an interest, other than as a creditor, in the
Partnership or from a related person to a person, other than the Participant,
having such an interest. Also, the amount a Participant has "at risk" in a
Partnership may not include the amount of any loss that the Participant is
protected against through:
o nonrecourse loans;
o guarantees;
o stop loss agreements; or
o other similar arrangements.
The amount of any loss that is disallowed will be carried over to the next
taxable year, to the extent a Participant is "at risk" in the Partnership.
Further, a Participant's "at risk" amount in subsequent taxable years of the
Partnership will be reduced by that portion of the loss which is allowable as
a deduction.
Since income, gains, losses, and distributions of the Partnership affect
the "at risk" amount, the extent to which a Participant is "at risk" must be
determined annually. Previously allowed losses must be included in gross
income if the "at risk" amount is reduced below zero. The amount included in
income, however, may be deducted in the next taxable year to the extent of any
increase in the amount which the Participant has "at risk" in the Partnership.
DISTRIBUTIONS FROM A PARTNERSHIP. Generally, a cash distribution from a
Partnership to a Participant in the Partnership in excess of the adjusted
basis of the Participant's Units immediately before the distribution is
treated as gain to the Participant from the sale or exchange of his Units to
the extent of the excess. I.R.C. ss.731(a)(1). No loss is recognized by the
Participants on these types of distributions. I.R.C. ss.731(a)(2). No gain or
loss is recognized by the Partnership on these types of distributions. I.R.C.
ss.731(b). If property is distributed by the Partnership to the Managing
General Partner and the Participants, certain basis adjustments may be made by
the Partnership, the Managing General Partner and the Participants. I.R.C.
ss.ss.732, 733, 734, and 754. (See ss.5.04(d) of the Partnership Agreement and
"- Tax Elections," below.) Other distributions of cash, disproportionate
distributions of property, and liquidating distributions of a Partnership may
result in taxable gain or loss to its Participants. (See "- Disposition of
Units" and "- Termination of a Partnership," below.)
SALE OF THE PROPERTIES. Under the Jobs and Growth Tax Relief Reconciliation
Act of 2003 ("2003 Tax Act"), the maximum tax rates on a noncorporate
taxpayer's adjusted net capital gain on the sale of assets held more than a
year of 20%, or 10% to the extent it would have been taxed at a 10% or 15%
rate if it had been ordinary income, have been reduced to 15% and 5%,
respectively, for most capital assets sold or exchanged after May 5, 2003. In
addition, for 2008 only, the 5% tax rate on adjusted net capital gain is
reduced to 0%. The 2003 Tax Act also eliminated the former maximum tax rates
of 18% and 8%, respectively, on qualified five-year gain. I.R.C. ss.1(h). The
new capital gain rates also apply for purposes of the alternative minimum tax.
I.R.C. ss.55(b)(3). (See "- Alternative Minimum Tax," below.) However, the
former tax rates are scheduled to be reinstated January 1, 2009, as if the
2003 Tax Act had never been enacted. "Adjusted net capital gain" means net
capital gain, less certain types of net capital gain that are taxed a maximum
rate of 28% (such as gain on the sale of most collectibles and gain on the
sale of certain small
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business stock); or 25% (gain attributable to real estate depreciation). "Net
capital gain" means the excess of net long-term gain (excess of long-term
gains over long-term losses) over net short-term loss (excess of short-term
gains over short-term losses). The annual capital loss limitation for
noncorporate taxpayers is the amount of capital gains plus the lesser of
$3,000, which is reduced to $1,500 for married persons filing separate
returns, or the excess of capital losses over capital gains. I.R.C.
ss.1211(b).
Gains and losses from sales of natural gas and oil properties held for more
than 12 months generally will be treated as a long-term capital gain, while a
net loss will be an ordinary deduction, except to the extent of depreciation
recapture on equipment and recapture of Intangible Drilling Costs and
depletion deductions as discussed below. In addition, gain on the sale of a
Partnership's natural gas and oil properties may be recaptured as ordinary
income to the extent of certain losses for the five most recent preceding
taxable years on previous sales, if any, of the Partnership's natural gas and
oil properties or other assets. I.R.C. ss.1231(c). Other gains and losses on
sales of natural gas and oil properties will generally result in ordinary
gains or losses.
Intangible Drilling Costs and depletion allowances that are incurred in
connection with a natural gas or oil property may be recaptured as ordinary
income when the property is sold or otherwise disposed of in a taxable
transaction by a Partnership. Generally, the amount recaptured is the lesser
of:
o the aggregate amount of expenditures which have been deducted as
Intangible Drilling Costs with respect to the property and which,
but for being deducted, would have been included in the adjusted
basis of the property, plus deductions for depletion which reduced
the adjusted basis of the property; or
o the excess of:
o the amount realized, in the case of a sale, exchange or
involuntary conversion; or
o the fair market value of the interest, in the case of any other
taxable disposition; over the adjusted basis of the property.
I.R.C. ss.1254(a).
(See "- Intangible Drilling Costs" and "- Depletion Allowance," above.)
In addition, all gain on the sale or other taxable disposition of equipment
is treated as ordinary income to the extent of MACRS deductions claimed by the
Partnership. I.R.C. ss. 1245(a). (See "- Depreciation - Modified Accelerated
Cost Recovery System ("MACRS"), above.)
DISPOSITION OF UNITS. The sale or exchange, including a purchase by the
Managing General Partner, of all or some of a Participant's Units held by him
for more than 12 months generally will result in a recognition of long-term
capital gain or loss. However, previous deductions for depreciation, depletion
and Intangible Drilling Costs, and the Participant's share of the
Partnership's "ss.751 assets" (i.e. inventory and unrealized receivables), may
be recaptured as ordinary income rather than capital gain regardless of how
long the Participant has owned his Units. (See "- Sale of the Properties,"
above.) If the Units are held for 12 months or less, the gain or loss
generally will be short-term gain or loss. Also, a Participant's pro rata
share of his Partnership's liabilities, if any, as of the date of the sale or
exchange must be included in the amount realized. Therefore, the gain
recognized by a Participant may result in a tax liability to the Participant
greater than the cash proceeds, if any, received by the Participant from the
disposition. In addition to gain from a passive activity, a portion of any
gain recognized by a Limited Partner on the sale or other taxable disposition
of his Units will be characterized as portfolio income under ss.469 of the
Code to the extent the gain is attributable to
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portfolio income, e.g. interest income on investments of working capital.
Treas. Reg. ss.1.469-2T(e)(3). (See "- Limitations on Passive Activities,"
above.)
A gift of a Participant's Units may result in federal and/or state income
tax and gift tax liability to the Participant. Also, interests in different
partnerships do not qualify for tax-free like-kind exchanges. I.R.C.
ss.1031(a)(2)(D). Other dispositions of a Participant's Units may or may not
result in recognition of taxable gain. However, no gain should be recognized
by an Investor General Partner on the conversion of his Investor General
Partner Units to Limited Partner Units so long as there is no change in his
share of his Partnership's liabilities or certain Partnership assets as a
result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157.
A Participant who sells or exchanges all or some of his Units is required by
the Code to notify the Partnership in which he invested within 30 days or by
January 15 of the following year, if earlier. I.R.C. ss.6050K. After receiving
the notice, the Partnership is required to make a return with the IRS stating
the name and address of the transferor and the transferee, the fair market
value of the portion of the Partnership's unrealized receivables and
appreciated inventory allocable to the Units sold or exchanged (which is
subject to recapture as ordinary income instead of capital gain) and any other
information as may be required by the IRS. The Partnership must also provide
each person whose name is set forth in the return a written statement showing
the information set forth on the return.
If a Participant dies, or sells or exchanges all of his Units, the taxable
year of the Partnership in which he invested will close with respect to that
Participant, but not the remaining Participants, on the date of death, sale or
exchange, with a proration of partnership items for the Partnership's taxable
year. I.R.C. ss.706(c)(2). If a Participant sells less than all of his Units,
the Partnership's taxable year will not terminate with respect to the selling
Participant, but his proportionate share of the Partnership's items of income,
gain, loss and deduction will be determined by taking into account his varying
interests in the Partnership during the taxable year. Deductions generally may
not be allocated to a person acquiring Units from a selling Participant for a
period before the purchaser's admission to the Partnership. I.R.C. ss.706(d).
Participants are urged to consult their own tax advisors before any
disposition of a Unit, including purchase of the Unit by the Managing General
Partner.
ALTERNATIVE MINIMUM TAX. With limited exceptions, taxpayers must pay an
alternative minimum tax if it exceeds the taxpayer's regular federal income
tax for the year. I.R.C. ss.55. For noncorporate taxpayers, the alternative
minimum tax is imposed on alternative minimum taxable income that is above an
exemption amount. Alternative minimum taxable income generally is taxable
income, plus or minus various adjustments, plus tax preference items. The tax
rate for noncorporate taxpayers is 26% for the first $175,000, $87,500 for
married individuals filing separately, of a taxpayer's alternative minimum
taxable income in excess of the exemption amount; and additional alternative
minimum taxable income is taxed at 28%. However, the regular tax rates on
capital gains also will apply for purposes of the alternative minimum tax.
(See "- Sale of the Properties," above.) Subject to the phase-out provisions
summarized below, the exemption amounts for 2004 are $58,000 for married
individuals filing jointly, $40,250 for single persons and $29,000 for married
individuals filing separately. For years beginning after 2004, these exemption
amounts are scheduled to decrease to $45,000 for married individuals filing
jointly, $33,750 for single persons, and $22,500 for married individuals
filing separately. As of the date of the Prospectus, the U.S. House of
Representatives had passed a bill that would extend the 2004 exemption amounts
to 2005 and index them for inflation in following years. Whether that bill or
other relief for taxpayers from the alternative minimum tax will become law in
2005 is uncertain. (See "- Changes in the Law," below.) The exemption amount
for estates and trusts is $22,500 in 2004 and subsequent years.
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The exemption amounts are phased out for taxpayers with high alternative
minimum taxable income. The exemption amounts are reduced by 25% of
alternative minimum taxable income in excess of:
o $150,000, in the case of married individuals filing a joint return
and surviving spouses - the $58,000 exemption amount is completely
phased out when alternative minimum taxable income is $382,000 or
more, and the $45,000 amount phases out completely at $330,000;
o $112,500, in the case of unmarried individuals other than surviving
spouses - the $40,250 exemption amount is completely phased out when
alternative minimum taxable income is $273,500 or more, and the
$33,750 amount phases out completely at $247,500; and
o $75,000, in the case of married individuals filing a separate return
- the $29,000 exemption amount is completely phased out when
alternative minimum taxable income is $191,000 or more and the
$22,500 amount phases out completely at $165,000. In addition, in
2004 the alternative minimum taxable income of married individuals
filing separately is increased by the lesser of $29,000 ($22,500
after 2004) or 25% of the excess of the person's alternative minimum
taxable income (determined without regard to this provision) over
$191,000 ($165,000 after 2004).
Some of the principal adjustments to taxable income that are used to
determine alternative minimum taxable income include:
o Depreciation deductions may not exceed deductions computed using the
150% declining balance method, except as discussed above in "-
Depreciation - Modified Accelerated Cost Recovery System ("MACRS")"
with respect to "qualified" Tangible Costs of equipment in wells
placed in service in 2004, if any, by Atlas America Public #14-2004
L.P.
o Miscellaneous itemized deductions are not allowed.
o Medical expenses are deductible only to the extent they exceed 10%
of adjusted gross income.
o State and local property and income taxes are not deductible.
o Interest deductions are restricted.
o The standard deduction and personal exemptions are not allowed.
o Only some types of operating losses are deductible.
o Different rules under the Code apply to incentive stock options that
may require earlier recognition of income.
The principal tax preference items that must be added to taxable income for
alternative minimum tax purposes include:
o Certain excess Intangible Drilling Costs, as discussed below.
o Tax-exempt interest earned on certain private activity bonds.
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For taxpayers other than "integrated oil companies" as that term is defined in
"- Intangible Drilling Costs," above, which does not include the Partnerships,
the 1992 National Energy Bill repealed:
o the preference for excess Intangible Drilling Costs; and
o the excess percentage depletion preference for natural gas and oil.
The repeal of the excess Intangible Drilling Costs preference, however, under
current law may not result in more than a 40% reduction in the amount of the
taxpayer's alternative minimum taxable income computed as if the excess
Intangible Drilling Costs preference had not been repealed. I.R.C.
ss.57(a)(2)(E). Under the prior rules, the amount of Intangible Drilling Costs
which is not deductible for alternative minimum tax purposes is the excess of
the "excess intangible drilling costs" over 65% of net income from natural gas
and oil properties. Net natural gas and oil income is determined for this
purpose without subtracting excess Intangible Drilling Costs. Excess
Intangible Drilling Costs is the regular Intangible Drilling Costs deduction
minus the amount that would have been deducted under 120-month straight-line
amortization, or, at the taxpayer's election, under the cost depletion method.
There is no preference item for costs of nonproductive wells.
Also, each Participant may elect under ss.59(e) of the Code to capitalize
all or part of his share of his Partnership's Intangible Drilling Costs and
deduct the costs ratably over a 60-month period beginning with the month in
which the costs were paid or incurred by the Partnership. This election also
applies for regular tax purposes and can be revoked only with the IRS'
consent. Making this election, therefore, generally will result in the
following consequences to the Participant:
o the Participant's regular tax deduction for Intangible Drilling
Costs in the year in which he invests will be reduced because the
Participant must spread the deduction for the amount of Intangible
Drilling Costs which the Participant elects to capitalize over the
60-month amortization period; and
o the capitalized Intangible Drilling Costs will not be treated as a
preference that is included in the Participant's alternative minimum
taxable income.
Other than Intangible Drilling Costs as discussed above, the principal tax
item that may have an impact on a Participant's alternative minimum taxable
income as a result of investing in a Partnership is depreciation of the
Partnership's equipment. Except for wells placed in service in 2004 by Atlas
America Public #14-2004 L.P., if any, as noted above, if a Participant invests
in that Partnership, each Partnership's cost recovery deductions for regular
income tax purposes generally will be computed using the 200% declining
balance method rather than the 150% declining balance method used for
alternative minimum tax purposes. This means that in the early years of a
Partnership a Participant's depreciation deductions from the Partnership
generally will be smaller for alternative minimum tax purposes when compared
to the Participant's depreciation deductions in those taxable years for
regular income tax purposes on the same equipment.
The rules relating to the alternative minimum tax for corporations are
different than those summarized above. All prospective Participants
contemplating purchasing Units in a Partnership are urged to consult with
their own personal tax advisors as to the likelihood of them incurring or
increasing any alternative minimum tax liability because of an investment in a
Partnership.
LIMITATIONS ON DEDUCTION OF INVESTMENT INTEREST. Investment interest expense
is deductible by a noncorporate taxpayer only to the extent of net investment
income each year, with an indefinite carryforward of disallowed investment
interest. I.R.C. ss.163. Investment interest expense generally includes all
interest on debt not incurred in a person's
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active trade or business except consumer interest, qualified residence
interest, and passive activity interest under ss.469 of the Code. Accordingly,
an Investor General Partner's share of any interest expense incurred by the
Partnership in which he invests before his Investor General Partner Units are
converted to Limited Partner Units will be subject to the investment interest
limitation. In addition, the Investor General Partner's share of the
Partnership's income and losses, including the deduction for Intangible
Drilling Costs, will be considered to be investment income and losses for
purposes of this limitation. Thus, for example, a loss allocated to the
Investor General Partner from the Partnership in the year in which he invests
in the Partnership as a result of the deduction for Intangible Drilling Costs
will reduce his net investment income and may reduce or eliminate the
deductibility of his investment interest expenses, if any, in that taxable
year with the disallowed portion to be carried forward to the next taxable
year.
Net investment income is the excess of investment income over investment
expenses. Investment income generally includes:
o gross income from interest, rents, and royalties;
o any excess of net gain from dispositions of investment property over
net capital gain determined by gains and losses from dispositions of
investment property, and any portion of the net capital gain or net
gain, if less, that the taxpayer elects to include in investment
income;
o portfolio income under the passive activity rules, which includes
working capital investment income;
o dividends that do not qualify to be taxed at capital gain rates and
dividends that the taxpayer elects to treat as not qualified to be
taxed at capital gain rates; and
o income from a trade or business in which the taxpayer does not
materially participate if the activity is not a "passive activity"
under ss.469 of the Code. In the case of Investor General Partners,
this includes the Partnership in which they invest before the
conversion of Investor General Partner Units to Limited Partner
Units in that Partnership, and possibly Partnership net income
allocable to former Investor General Partners after they are
converted to Limited Partners in that Partnership.
Investment expenses include deductions, other than interest, that are directly
connected with the production of net investment income, including actual
depreciation or depletion deductions allowable. Investment income and
investment expenses, however, do not include income or expenses taken into
account in computing income or loss from a passive activity under ss.469 of the
Code. (See "- Limitations on Passive Activities," above.)
ALLOCATIONS. The Partnership Agreement allocates to each Participant his
share of his Partnership's income, gains, losses and deductions, including the
deductions for Intangible Drilling Costs and depreciation. Allocations of
certain items are made in ratios that are different than allocations of other
items. (See "Participation in Costs and Revenues" in the Prospectus.) The
Capital Accounts of the Participants are adjusted to reflect these allocations
and the Capital Accounts, as adjusted, will be given effect in distributions
made to the Participants on liquidation of the Partnership or any
Participant's Units. Generally, the basis of the natural gas and oil
properties owned by a Partnership for computation of cost depletion and gain
or loss on disposition will be allocated and reallocated when necessary in the
ratio in which the expenditure giving rise to the tax basis of each property
was charged as of the end of the year. (See ss.5.03(b) of the Partnership
Agreement.)
Generally, a Participant's Capital Account in the Partnership in which he
invests is increased by:
o the amount of money he contributes to the Partnership; and
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o allocations of income and gain to him from the Partnership;
and decreased by:
o the value of property or cash distributed to him by the Partnership;
and
o allocations of loss and deductions to him by the Partnership.
The regulations also require that there must be a reasonable possibility that
the allocation will affect substantially the dollar amounts to be received by
the partners from the partnership, independent of tax consequences.
Allocations made in a manner that is disproportionate to the respective
interests of the partners in a partnership of any item of partnership income,
gain, loss, deduction or credit will not be given effect unless the allocation
has "substantial economic effect." I.R.C. ss.704(b). An allocation generally
will have economic effect if throughout the term of a partnership:
o the partners' capital accounts are maintained in accordance with
rules set forth in the regulations, which generally are based on tax
accounting principles;
o liquidation proceeds are distributed in accordance with the
partners' capital accounts; and
o any partner with a deficit balance in his capital account following
the liquidation of his interest in the partnership is required to
restore the amount of the deficit to the partnership.
Even though the Participants in each Partnership are not required under the
Partnership Agreement to restore deficit balances in their Capital Accounts
with additional Capital Contributions, an allocation which is not attributable
to nonrecourse debt still will be considered under the regulations to have
economic effect to the extent it does not cause or increase a deficit balance
in a Participant's Capital Account if:
o the Partners' Capital Accounts are maintained in accordance with
rules set forth in the regulations, which generally are based on tax
accounting principles;
o liquidation proceeds are distributed in accordance with the
Partners' Capital Accounts; and
o the Partnership Agreement provides that a Participant who
unexpectedly incurs a deficit balance in his Capital Account because
of certain adjustments, allocations, or distributions will be
allocated income and gain sufficient to eliminate the deficit
balance as quickly as possible.
Treas. Reg. ss.1.704-l(b)(2)(ii)(d). These provisions are included in the
Partnership Agreement (See ss.ss.5.02, 5.03(h), and 7.02(a) of the Partnership
Agreement.)
Special provisions apply to deductions related to nonrecourse debt. If the
Managing General Partner or an Affiliate makes a nonrecourse loan to a
Partnership ("partner nonrecourse liability"), Partnership losses, deductions,
or ss.705(a)(2)(B) expenditures attributable to the loan must be allocated to
the Managing General Partner. Also, if there is a net decrease in partner
nonrecourse liability minimum gain with respect to the loan, the Managing
General Partner
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must be allocated income and gain equal to the net decrease. (See
ss.ss.5.03(a)(1) and 5.03(i) of the Partnership Agreement.)
In the event of a sale or transfer of a Participant's Unit, the death of a
Participant, or the admission of an additional Participant, a Partnership's
income, gain, loss and deductions generally will be allocated among its
Participants according to their varying interests in the Partnership during
the taxable year. In addition, in the discretion of the Managing General
Partner, Partnership property may be revalued on the admission of additional
Participants, or if certain distributions are made to the Participants, to
reflect unrealized income, gain, loss or deduction, inherent in the
Partnership's property for purposes of adjusting the Participants' Capital
Accounts. (See "- Tax Elections," below.)
It should also be noted that each Participant's share of items of income,
gain, loss and deduction in the Partnership in which he invests must be taken
into account by him whether or not he receives any cash distributions from the
Partnership. A Participant's share of Partnership revenues applied by his
Partnership to the repayment of loans or the reserve for plugging wells, for
example, will be included in his gross income in a manner analogous to an
actual distribution of the income to him. Thus, a Participant may have tax
liability on taxable income from his Partnership for a particular year in
excess of any cash distributions from the Partnership to him with respect to
that year. To the extent a Partnership has cash available for distribution,
however, it is the Managing General Partner's policy that Partnership cash
distributions will not be less than the Managing General Partner's estimate of
the Participants' income tax liability with respect to that Partnership's
income.
If any allocation under the Partnership Agreement is not recognized for
federal income tax purposes, each Participant's share of the items subject to
the allocation generally will be determined in accordance with his interest in
the Partnership in which he invests by considering all of the relevant facts
and circumstances. To the extent deductions allocated by the Partnership
Agreement exceed deductions which would be allowed under a reallocation by the
IRS, Participants may incur a greater tax burden. However, assuming the effect
of the allocations of income, gain, loss and deduction, or items thereof, set
forth in the Partnership Agreement, including the allocations of basis and
amount realized with respect to natural gas and oil properties, is substantial
in light of a Participant's tax attributes that are unrelated to the
Partnership in which he invests, in our opinion the allocations will have
"substantial economic effect" and will govern the Participant's share of those
items to the extent the allocations do not cause or increase a deficit balance
in the Participant's Capital Account.
PARTNERSHIP BORROWINGS. Under the Partnership Agreement the Managing General
Partner and its Affiliates may make loans to the Partnerships. The use of
Partnership revenues taxable to Participants to repay borrowings by their
Partnership could create income tax liability for the Participants in excess
of cash distributions to them from the Partnership, since repayments of
principal are not deductible for federal income tax purposes. In addition,
interest on the loans will not be deductible unless the loans are bona fide
loans that will not be treated as Capital Contributions in light of all of the
surrounding facts and circumstances. In Revenue Ruling 72-135, 1972-1 C.B.
200, the IRS ruled that a nonrecourse loan from a general partner to a
partnership engaged in natural gas and oil exploration represented a capital
contribution by the general partner rather than a loan. Whether a "loan" by
the Managing General Partner or its Affiliates to a Partnership represents in
substance debt or equity is a question of fact to be determined from all the
surrounding facts and circumstances.
PARTNERSHIP ORGANIZATION AND OFFERING COSTS. Expenses connected with the
issuance and sale of the Units in the Partnerships, such as promotional
expense, the Dealer-Manager fee, Sales Commissions, reimbursements to the
Dealer-Manager and other selling expenses, professional fees, and printing
costs, which are charged under the Partnership Agreement 100% to the Managing
General Partner as Organization and Offering Costs, are not deductible.
Although certain expenses incident to the creation of a partnership may be
amortized over a period of not less than 60 months, these expenses also will
be paid by the Managing General Partner as part of each Partnership's
Organization
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and Offering Costs. Thus, any related deductions, which the Managing General
Partner does not anticipate will be material in amount as compared to the
total subscription proceeds in any Partnership, will be allocated to the
Managing General Partner. I.R.C. ss.709; Treas. Reg. ss.ss.1.709-1 and 2.
TAX ELECTIONS. Although each Partnership may elect to adjust the basis of
its property (other than cash) on the transfer of a Unit in the Partnership by
sale or exchange or on the death of a Participant, and on the distribution of
property by the Partnership to a Participant (the ss.754 election), the
Managing General Partner does not intend to make this election for any of the
Partnerships. The general effect of this election is that transferees of the
Units are treated, for purposes of depreciation and gain, as though they had
acquired a direct interest in the Partnership assets and the Partnership is
treated for these purposes, on certain distributions to the Participants, as
though it had newly acquired an interest in the Partnership assets and
therefore acquired a new cost basis for the assets. Any election, once made,
may not be revoked without the consent of the IRS. As of the date of the
Prospectus several bills were pending in Congress that proposed to make the
ss.754 election mandatory for all partnerships. If the ss.754 election does
become mandatory, the primary effect on a Partnership, other than the federal
income tax consequences discussed above, would be an increase in its
administrative and accounting expenses to make the required basis adjustments
to its properties and separately account for those adjustments after they are
made. (See "- Changes in the Law," below.) In this regard, the Partnerships
generally will not make in-kind property distributions to their respective
Participants, and the Units have not readily available market and are subject
to substantial restrictions on their transfer. (See "Transferability of Units
- - Restrictions on Transfer Imposed by the Securities Laws, the Tax Laws and
the Partnership Agreement" in the Prospectus.) These factors will tend to
limit the additional expense to a Partnership if the ss.754 election applies
to it. Each Partnership also may make various elections for federal tax
reporting purposes which could result in various items of income, gain, loss
and deduction being treated differently for tax purposes than for accounting
purposes.
Code ss.195 permits taxpayers to elect to capitalize and amortize "start-up
expenditures" over a 60-month period. These items include amounts:
o paid or incurred in connection with:
o investigating the creation or acquisition of an active trade or
business;
o creating an active trade or business; or
o any activity engaged in for profit and for the production of
income before the day on which the active trade or business
begins, in anticipation of the activity becoming an active
trade or business; and
o which would be allowed as a deduction if paid or incurred in
connection with the expansion of an existing business.
Start-up expenditures do not include amounts paid or incurred in connection
with the sale of the Units. If it is ultimately determined by the IRS or the
courts that any of a Partnership's expenses constituted start-up expenditures,
the Partnership's deductions for those expenses would be deferred over the 60-
month period.
TERMINATION OF A PARTNERSHIP. Under ss.708(b) of the Code, a Partnership
will be considered as terminated for federal income tax purposes if within a
12-month period there is a sale or exchange of 50% or more of the total
interest in Partnership capital and profits. The closing of the Partnership
year may result in more than 12 months' income or loss of the Partnership
being allocated to certain Participants for the year of termination, for
example, in the case of any Participants using fiscal years other than the
calendar year. Under ss.731 of the Code, a Participant will realize taxable
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gain on a termination of a Partnership to the extent that money regarded as
distributed to him by the Partnership exceeds the adjusted basis of his Units.
The conversion of Investor General Partner Units to Limited Partner Units,
however, will not terminate a Partnership. Rev. Rul. 84-52, 1984-1 C.B. 157.
Also, due to the restrictions on transfers of Units in the Partnership
Agreement, the Managing General Partner does not anticipate that any
Partnership will ever be considered as terminated under ss.708(b) of the Code.
LACK OF REGISTRATION AS A TAX SHELTER. Section 6111 of the Code generally
requires an organizer of a "tax shelter" to register the tax shelter with the
Secretary of the Treasury, and to obtain an identification number which must
be included on the individual federal income tax returns of investors in the
tax shelter. For this purpose, a "tax shelter" generally is defined to include
an investment with respect to which any person could reasonably infer that the
ratio that:
o the aggregate amount of the potentially allowable deductions and
350% of the potentially allowable credits with respect to the
investment during the first five years of the investment bears to;
o the amount of money and the adjusted basis of property contributed
to the investment;
exceeds 2 to 1. In this regard, the Managing General Partner has determined
that none of the Partnerships has a tax shelter ratio greater than 2 to 1.
Accordingly, the Managing General Partner does not intend to register any of
the Partnerships with the IRS as a tax shelter.
If it is subsequently determined by the IRS or the courts that the
Partnerships were required to be registered with the IRS as tax shelters, the
Managing General Partner would be subject to certain penalties, including a
penalty of 1% of the aggregate amount invested in each Partnership for failing
to register and $100 for each failure to furnish a Participant a tax shelter
registration number. Also, each Participant in that Partnership would be
liable for a $250 penalty for failure to include a tax shelter registration
number for the Partnership in which he invests on his individual federal
income tax return unless the failure was due to reasonable cause. A
Participant also would be liable for a penalty of $100 for failing to furnish
the tax shelter registration number to any transferee of his Units. However,
in our opinion none of the Partnerships is required to register with the IRS
as a tax shelter. This opinion is based in part on the Managing General
Partner's representations that none of the Partnerships has a tax shelter
ratio greater than 2 to 1 and each Partnership will be operated as described
in the Prospectus.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE IRS.
INVESTOR LISTS. Under Section 6112 of the Code, if requested by the IRS a
Partnership may be required to identify its Participants and provide the IRS
with certain information concerning each Participant's investment in the
Partnership and the tax benefits of the Partnership to the Participants, even
though the Partnership is not registered with the IRS as a tax shelter.
TAX RETURNS AND IRS AUDITS. The tax treatment of all partnership items
generally is determined at the partnership, rather than the partner, level;
and the partners generally are required to treat partnership items on their
individual federal income tax returns in a manner which is consistent with the
treatment of the partnership items on the partnership's federal information
income tax return. I.R.C. ss.ss.6221 and 6222. Regulations define "partnership
items" for this purpose as including distributive share items that must be
allocated among the partners, such as partnership liabilities, data pertaining
to the computation of the depletion allowance, and guaranteed payments. Treas.
Reg. ss.301.6231(a)(3)-1.
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 28
Generally, the IRS must conduct an administrative determination as to
partnership items at the partnership level before conducting deficiency
proceedings against a partner, and the partners must file a request for an
administrative determination before filing suit for any credit or refund. The
period for assessing tax against the Participants attributable to a
partnership item generally may be extended by agreement between the IRS and
the Managing General Partner, which will serve as each Partnership's
representative ("Tax Matters Partner") in all administrative and judicial tax
proceedings conducted at the partnership level. The Tax Matters Partner
generally may enter into a settlement on behalf of, and binding on, any
Participant owning less than a 1% profits interest in a Partnership if there
are more than 100 partners in the Partnership. In addition, a partnership with
at least 100 partners may elect to be governed under simplified tax reporting
and audit rules as an "electing large partnership." I.R.C. ss.775. These rules
also facilitate the matching of partnership items with individual partner
federal income tax returns by the IRS. The Managing General Partner does not
anticipate that the Partnerships will make this election. By executing the
Partnership Agreement, each Participant agrees that he will not form or
exercise any right as a member of a notice group and will not file a statement
notifying the IRS that the Tax Matters Partner does not have binding
settlement authority. All expenses of any proceedings involving the Managing
General Partner as Tax Matters Partner, which might be substantial, will be
paid for by the Partnership being audited. The Managing General Partner,
however, is not obligated to contest adjustments made by the IRS. The Managing
General Partner will notify the Participants of any IRS audits or other tax
proceedings, and will provide the Participants any other information regarding
the proceedings as may be required by the Partnership Agreement or law.
TAX RETURNS. A Participant's individual income tax returns are the
responsibility of the Participant. Each Partnership will provide its
Participants with the tax information applicable to their investment in the
Partnership necessary to prepare their tax returns.
PENALTIES AND INTEREST. Interest is charged on underpayments of federal
income tax and various penalties are included in the Code.
PENALTY FOR NEGLIGENCE OR DISREGARD OF RULES OR REGULATIONS. If any portion
of an underpayment of federal income tax is attributable to negligence or
disregard of IRS rules or regulations, 20% of that portion is added to the
tax. Negligence is strongly indicated if a Participant fails to treat
partnership items on his individual federal income tax return in a manner that
is consistent with the treatment of those items on his Partnership's federal
information income tax return or to notify the IRS of the inconsistency. The
term "disregard" includes any careless, reckless or intentional disregard of
rules or regulations. There is no penalty, however, if the position (other
than negligence) is adequately disclosed and has at least a reasonable basis,
or the position is taken with reasonable cause and in good faith, or the
position is contrary to an IRS ruling or notice but has a realistic
possibility of being sustained on its merits. Treas. Reg. ss.ss.1.6662-3 and
1.6662-7.
VALUATION MISSTATEMENT PENALTY. There is an addition to federal income tax
of 20% of the amount of any underpayment of tax of $5,000 or more, $10,000 in
the case of corporations other than S corporations or personal holding
companies, which is attributable to a substantial valuation misstatement.
There is a substantial valuation misstatement if:
o the value or adjusted basis of any property claimed on a return is
200% or more of the correct amount; or
o the price for any property or services, or for the use of property,
claimed on a return is 200% or more, or 50% or less, of the correct
price.
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 29
If there is a gross valuation misstatement, which is 400% or more of the
correct value or adjusted basis, or the undervaluation is 25% or less of the
correct amount, then the penalty is 40%. I.R.C. ss.6662(e) and (h).
SUBSTANTIAL UNDERSTATEMENT PENALTY. There is also an addition to federal
income tax of 20% of any underpayment if the difference between the tax
required to be shown on the return over the tax actually shown on the return
exceeds the greater of:
o 10% of the tax required to be shown on the return; or
o $5,000, $10,000 in the case of corporations other than S
corporations or personal holding companies. I.R.C. ss.6662(d).
The amount of any understatement generally will be reduced to the extent it is
attributable to the tax treatment of an item:
o supported by substantial authority; or
o adequately disclosed on the taxpayer's individual federal income
return and there was a reasonable basis for the tax treatment.
However, in the case of "tax shelters," which as defined by the Code for
this purpose includes each Partnership , the understatement may be reduced by
a taxpayer, other than a corporation, only if the tax treatment of an item
attributable to a tax shelter was supported by substantial authority and the
taxpayer establishes that he reasonably believed that the tax treatment
claimed was more likely than not the proper treatment. I.R.C. ss.6662(d)(2)(C).
Disclosure of partnership items should be made on each Partnership's federal
information income tax return; however, a Participant also may make adequate
disclosure on his individual federal income tax return with respect to pass-
through items from the Partnership in which he invests.
PROFIT MOTIVE, ANTI-ABUSE RULE AND JUDICIAL DOCTRINES. Under ss.183 of the
Code, a Participant's ability to deduct his share of his Partnership's losses
could be lost if the Partnership lacks the appropriate profit motive as
determined from an examination of all facts and circumstances at the time.
Section 183 of the Code creates a presumption that an activity is engaged in
for profit if, in any three of five consecutive taxable years, the gross
income derived from the activity exceeds the deductions attributable to the
activity. Thus, if a Partnership fails to show a profit in at least three out
of five consecutive years this presumption will not be available and the
possibility that the IRS could successfully challenge the Partnership
deductions claimed by its Participants would be substantially increased. The
fact that the possibility of ultimately obtaining profits is uncertain,
standing alone, does not appear to be sufficient grounds for the denial of
losses under ss.183 of the Code. (See Treas. Reg. ss.1.183-2(c), Example (5).)
Under Treas. Reg. ss.1.701-2, if a principal purpose of a partnership is to
reduce substantially the partners' federal income tax liability in a manner
that is inconsistent with the intent of the partnership rules of the Code,
based on all the facts and circumstances, the IRS is authorized to remedy the
abuse. For illustration purposes, the following factors may indicate that a
partnership is being used in a prohibited manner:
o the partners' aggregate federal income tax liability is
substantially less than had the partners owned the partnership's
assets and conducted its activities directly;
o the partners' aggregate federal income tax liability is
substantially less than if purportedly separate transactions are
treated as steps in a single transaction;
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 30
o one or more partners are needed to achieve the claimed tax results
and have a nominal interest in the partnership or are substantially
protected against risk;
o substantially all of the partners are related to each other;
o income or gain are allocated to partners who are not expected to
have any federal income tax liability;
o the benefits and burdens of ownership of property nominally
contributed to the partnership are retained in substantial part by
the contributing party; and
o the benefits and burdens of ownership of partnership property are in
substantial part shifted to the distributee partners before or after
the property is actually distributed to the distributee partners.
We also have considered the possible application to each Partnership and its
intended activities of the potentially relevant judicial doctrines summarized
below.
o Step Transactions. This doctrine provides that where a series of
transactions would give one tax result if viewed independently, but
a different tax result if viewed together, then the IRS may combine
the separate transactions.
o Business Purpose. This doctrine involves a determination of whether
the taxpayer has a business purpose, other than tax avoidance, for
engaging in the transaction, i.e. a "profit objective."
o Economic Substance. This doctrine requires a determination of
whether, from an objective viewpoint, a transaction is likely to
produce economic benefits in addition to tax benefits. This test is
met if there is a realistic potential for profit when the investment
is made, in accordance with the standards applicable to the relevant
industry, so that a reasonable businessman, using those standards,
would make the investment.
o Substance Over Form. This doctrine holds that the substance of the
transaction, rather than the form in which it is cast, governs. It
applies where the taxpayer seeks to characterize a transaction as
one thing, rather than another thing which has different tax
results. Under this doctrine, the transaction must have practical
economical benefits other than the creation of income tax losses.
o Sham Transactions. Under this doctrine, a transaction lacking
economic substance may be ignored for tax purposes. Economic
substance requires that there be business realities and tax-
independent considerations, rather than just tax-avoidance features,
i.e. the transaction must have a reasonable and objective
possibility of providing a profit aside from tax benefits. Shams
include, for example, transactions entered into solely to reduce
taxes, which is not a profit motive because there is no intent to
produce taxable income.
In our opinion, the Partnerships will possess the requisite profit motive
under ss.183 of the Code, and the IRS anti-abuse rule in Treas. Reg. ss.1.701-2
and the potentially relevant judicial doctrines summarized above, will not
have a material adverse effect on the tax consequences of an investment in a
Partnership by a typical Participant as described in our opinions. These
opinions are based in part on the results of the previous partnerships
sponsored by the Managing General Partner as set forth in "Prior Activities"
in the Prospectus and the Managing General Partner's representations.
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 31
These representations include that each Partnership will be operated as
described in the Prospectus (see "Management" and "Proposed Activities" in the
Prospectus), and the principal purpose of each Partnership is to locate,
produce and market natural gas and oil on a profitable basis, apart from tax
benefits. These representations are supported by the geological evaluations
and the other information for the Partnerships' proposed drilling areas and
the specific Prospects proposed to be drilled by Atlas America Public #14-2004
L.P. included in Appendix A to the Prospectus. In addition, Appendix A will be
supplemented or amended to cover a portion of the specific Prospects proposed
to be drilled by Atlas America Public #14-2005(A) L.P. and Atlas America
Public #14-2005(B) L.P. when Units in those Partnerships are offered to
potential investors.
STATE AND LOCAL TAXES. Each Partnership will operate in states and
localities which impose a tax on its assets or its income, or on each of its
Participants. The Partnerships also may be subject to state income tax
withholding requirements on the Partnership or its Participants' share of the
Partnership's income whether distributed to the Participants or not.
Deductions which may be available to Participants for federal income tax
purposes, may not be available for state or local income tax purposes. An
example is the accelerated 50% first-year depreciation deduction discussed in
"-Depreciation - Modified Accelerated Cost Recovery System ("MACRS") above. A
Participant's share of the net income or net loss of the Partnership in which
he invests generally must be included in determining his reportable income for
state or local tax purposes in the jurisdiction in which he is a resident. To
the extent that a non-resident Participant pays tax to a state because of
Partnership operations within that state, he may be entitled to a deduction or
credit against tax owed to his state of residence with respect to the same
income. To the extent that the Partnership operates in certain jurisdictions,
state or local estate or inheritance taxes may be payable on the death of a
Participant in addition to taxes imposed by his own domicile.
Prospective Participants are urged to consult with their own tax advisors
concerning the possible effect of various state and local taxes on their
personal tax situations resulting from an investment in a Partnership.
SEVERANCE AND AD VALOREM (REAL ESTATE) TAXES. Each Partnership may incur
various ad valorem or severance taxes imposed by state or local taxing
authorities on its natural gas and oil wells and/or natural gas and oil
production from the wells.
SOCIAL SECURITY BENEFITS AND SELF-EMPLOYMENT TAX. A Limited Partner's share
of income or loss from a Partnership is excluded from the definition of "net
earnings from self-employment." No increased benefits under the Social
Security Act will be earned by Limited Partners and if any Limited Partners
are currently receiving Social Security benefits, their shares of Partnership
taxable income will not be taken into account in determining any reduction in
benefits because of "excess earnings."
An Investor General Partner's share of income or loss from a Partnership
will constitute "net earnings from self-employment" for these purposes. I.R.C.
ss.1402(a). The ceiling for social security tax of 12.4% in 2004 is $87,900 and
the ceiling for 2005 is not yet known. There is no ceiling for medicare tax of
2.9%. Self-employed individuals can deduct one-half of their self-employment
tax.
FARMOUTS. Under a Farmout by a Partnership, if a property interest, other
than an interest in the drilling unit assigned to the Partnership Well in
question, is earned by the farmee (anyone other than the Partnership) from the
farmor (the Partnership) as a result of the farmee drilling or completing the
well, then the farmee must recognize income equal to the fair market value of
the outside interest earned, and the farmor must recognize gain or loss on a
deemed sale equal to the difference between the fair market value of the
outside interest and the farmor's tax basis in the outside interest. Neither
the farmor nor the farmee would have received any cash to pay the tax. The
Managing General Partner will attempt to eliminate or reduce any gain to a
Partnership from a Farmout, if any. However, if the IRS claims that a
KUNZMAN & BOLLINGER, INC.
Atlas Resources, Inc.
August 25, 2004
Page 32
Farmout by a Partnership results in taxable income to the Partnership and its
position is ultimately sustained, the Participants in that Partnership would
be required to include their share of the resulting taxable income on their
personal income tax returns, even though the Partnership and its Participants
received no cash from the Farmout.
FOREIGN PARTNERS. Each Partnership generally will be required to withhold
and pay income tax to the IRS at the highest rate under the Code applicable to
Partnership income allocable to its foreign Participants, even if no cash
distributions are made to them. I.R.C. ss.1446. Also, a purchaser of a foreign
Participant's Units may be required to withhold a portion of the purchase
price and the Managing General Partner may be required to withhold with
respect to taxable distributions of real property to a foreign Participant.
These withholding requirements do not obviate United States tax return filing
requirements for foreign Participants. In the event of overwithholding a
foreign Participant must file a United States tax return to obtain a refund.
Under ss.1441 of the Code, for withholding purposes a foreign Participant
generally means a nonresident alien individual or a foreign corporation,
partnership, trust or estate, if the Participant has not certified to his
Partnership the Participant's nonforeign status.
ESTATE AND GIFT TAXATION. There is no federal tax on lifetime or
testamentary transfers of property between spouses. The gift tax annual
exclusion in 2004 is $11,000 per donee, which will be adjusted in subsequent
years for inflation. Under the Economic Growth and Tax Relief Reconciliation
Act of 2001 (the "2001 Tax Act"), the maximum estate and gift tax rate of 48%
in 2004 will be reduced in stages until it is 45% from 2007 through 2009.
Estates of $1.5 million in 2004, which increases in stages to $3.5 million by
2009, or less generally are not subject to federal estate tax. Under the 2001
Tax Act, the federal estate tax will be repealed in 2010, and the maximum gift
tax rate in 2010 will be 35%. In 2011 the federal estate and gift taxes are
scheduled to be reinstated under the rules in effect before the 2001 Tax Act
was enacted.
CHANGES IN THE LAW. A Participant's investment in a Partnership may be
affected by changes in the tax laws. (See "- Tax Elections," above.) For
example, in 2003 the top four federal income tax brackets for individuals were
reduced through December 31, 2010, including reducing the top bracket to 35%
from 38.6%. The lower federal income tax rates will reduce to some degree the
amount of taxes a Participant can save by virtue of his share of his
Partnership's deductions for Intangible Drilling Costs, depletion and
depreciation. On the other hand, the lower federal income tax rates also will
reduce the amount of federal income tax liability incurred by a Participant on
his share of the net income of his Partnership. There is no assurance that the
federal income tax brackets discussed above will not be changed again before
2011. Prospective Participants are urged to consult with their own advisors
with respect to the impact of recent legislation on an investment in a
Partnership and the status of legislative, regulatory or administrative
developments and proposals and their potential effect on an investment in a
Partnership.
We consent to the use of this letter as an exhibit to the Registration
Statement, and all amendments to the Registration Statement, and to all
references to this firm in the Prospectus.
Very truly yours,
/s/ Kunzman & Bollinger, Inc.
KUNZMAN & BOLLINGER, INC.