Tax accountant's view of the oil and gas tax shelter;

              A TAX ACCOUNTANT'S VIEW Anthony P. Spohr
OF THE OIL AND GAS Manager, San Jose Office
TAX SHELTER
Presented at a seminar sponsored by Sutro & Co., San Jose-April 1974
We have an energy crisis because oil and gas and other fuels are in short supply. The consensus seems to be that the shortage is above the ground, not beneath it. The nation, then, is faced with two crucial objectives: (1) it must locate the oil, and (2) it must get it out of the ground.
This may appear to be a simplistic recital of the problem, but it is precisely this clear-cut difficulty that faces us now and that to some extent has been a problem for many years. The solution to this simple problem is also simple. All it takes is money—and in the petroleum business quite a lot of it. With enough money, the oil could no doubt be located and extracted to provide a most adequate supply. So it all boils down to financing or the lack of it. Since the oil crisis is of national, not to say international proportions, the raising of money to meet this crisis is a national objective.
WHY TAX SHELTERS?
Paradoxically, we can raise money to accomplish our national purposes in one of two ways—either we can levy taxes to raise the required funds or we can decide not to levy them. The government could, of course, levy sufficiently high taxes on all of us so that it could directly subsidize the country's efforts to locate energy and get it out of the ground. Since this approach smacks of socialism and other "isms" not consistent with the great American theme, not levying taxes has always been the preferred method of raising funds.
How can we raise money by not levying taxes? The answer, of course, lies in every man's desire to invest his money in things that provide the greatest cash yield. Who does not prefer 9-percent bonds of good quality over 6-percent bonds, for example? The former yield more than the latter—or do they? If tax is not levied against the 6-percent bond, we can rather easily induce a taxpayer in the 50-percent tax bracket to invest in the 6s instead of the 9s. After taxes, the 9-percent bond yields 4½ percent to the 50-percent-bracket taxpayer. Now the untaxed 6s look very attractive. It is precisely