Muhammad U Khan
DeVry University
ACCT 429: Federal Income Taxation
Professor Deanna King
Research Essay Assignment 1

Passive loss limitations were introduced in the Tax Reform Act of 1986, and were designed to limit a taxpayer’s ability to use rental or business losses to offset other income. The regulation limited losses to a fixed dollar amount, and also limited the total loss exposure to the amount of investment and leverage commitment (basis and at-risk limitations). By taking such measure the regulation did succeed in limiting such investments but still did not completely eliminate them. According to irs.gov oil and gas activities in which the tax payer has a working interest with the entity with an unlimited liability is un-effected by the passive loss limitation. What that means is that if the taxpayer owns interest in an oil and gas activity via a joint venture, his liability will not be limited. The passive loss limitations will not be applied. Losses or income will be non-passive.

Energy Investments, Inc.
Energy Investment Inc. with its online offering at http://www.energyinvestmentsinc.net/index.php?&page=why&keyword=oilgas&gclid=CJvJ-OrxwLgCFYyd4AodZicAHw, is offering an annual return of 20-80%. As mentioned on the above website the return rate is determined from a ‘depletion allowance’, ‘high financial rewards’ and a “hedge against inflation”. The company also mentions “Return of Capital in 6 to 12 months Better than 10 to one Return on Investment Greater than 50% Annual Rate of Return”. They also provide a form with investment information where they ask if the prospective investor has sufficient investment capital, has ever invested in energy before, and is an accredited investor. Rule 505 and 506 of the Securities Act of 1933 elaborate that selling to accredited investors excuses Energy Investments from registering its