Oil and gas investments tapping into tax advantages for drilling costs, qualified opportunity zones and 1031 exchanges could bring valuable returns with fewer payments to Uncle Sam.

Financial advisors working with high net worth investors or other clients seeking diversification with tax savings should consider alternative investments in oil and gas, according to Matthew Iak, executive vice president of the U.S. Energy Development Corporation, which invests in, operates and drills wells. While renewable energy gets its own tax advantages, some tailwinds are gusting behind oil and gas assets based on the higher likelihood that incoming President Donald Trump and the Republican-led Congress will extend policies such as the opportunity zones and expand the record production and growth started under President Joe Biden.

For high net worth and other accredited investors, the oil and gas assets represent “a really great financial planning tool” and a change in recent years in an energy industry in which “the tax tail used to wag the investment dog,” Iak said in an interview.

“Energy has designed itself very well to take advantage of these tax arbitrages,” Iak said. “It used to be a very tax-driven industry that wasn’t always as economically driven, and I think that paradigm has shifted as a whole in the last five to seven years.”

READ MORE: The best- and worst-performing energy ETFs of the decade

The asset class remains a volatile one subject to an array of macroeconomic and geopolitical factors that are delivering “more uncertainty in energy markets heading into a new year than any year since the pandemic,” according to an outlook report for 2025 by S&P Global Commodity Insights. Wars in Ukraine and the Middle East, U.S.-China tensions, electricity demand for artificial intelligence and possible tariffs or pullouts from international climate agreements add up to just a few of them. Political pushback against ESG and bad actors’ frequent use of schemes tied to energy investing bring further potential risks or rewards.

“There are emerging technological and fundamental trends that will clearly have an impact on markets over the coming year, although how significant their impact will be is uncertain,” S&P Global Commodity Co-President Dave Ernsberger said in a statement.

Still, the prospects for energy investments in general for 2025 look “bright,” according to a December note by Fidelity Investments portfolio managers Maurice FitzMaurice and Kristen Dougherty. Other elements of the equation are weighing more heavily than the outcome of the election, which “should not have a significant impact on oil markets,” they wrote.

“The price of crude oil is likely to remain elevated in 2025 due to rising global demand, constrained global supply and elevated geopolitical risk,” their outlook report’s key takeaways read. “More energy producers are likely to boost crude-oil production in an environment of higher prices. Elevated crude-oil prices make it easier for many energy companies to generate higher profits, especially energy producers and energy equipment and services companies.”

Against that larger backdrop, Iak focused on three possible forms of private investments that are different from a publicly traded energy company’s stock or a sector-focused ETF.

READ MORE: Goldman Sachs on what 2025 might bring for markets

Drilling deductions

The first revolves around Section 263(c) of the Tax Code, which enables the deduction of intangible drilling costs for new oil and gas wells and future depreciation expenses on the equipment at the facilities. Investing in a new oil well could help advisors and their clients reduce their annual income for tax-bracket purposes while opening opportunities for strategies such as a Roth conversion or savings on a required minimum distribution from an individual retirement account and qualifying for greater deductions on the profits of pass-through entities.

“You’re able to write the dollar off, and most of it in the calendar year that you invest,” Iak said. “In financial planning, if you like the underlying investment, most importantly, and you can pair that with tax planning, it becomes a really amazing tool. You can net a lot of money when you do this right. …  It becomes a key to accomplish something in financial planning.”

Opportunity zones

Oil and gas or renewable energy investments in economically distressed areas designated as “qualified opportunity zones” under the Tax Cuts and Jobs Act come with further tax advantages. Deferral of taxes on capital gains and duty-free growth after a decade tack on additional savings on top of the underlying returns. That’s why Iak refers to opportunity zones as “a mega-Roth for capital gains” and, although he admits he is “very biased” in saying so, why he believes they are “the single greatest tax code ever written,” he said.

With lawmakers expected to enshrine opportunity zones past their current expiration in 2027 as part of this year’s tax debate, rural areas such as some parts of the famed Permian Basin in Texas could garner an influx of investments, Iak added.

“Most of the benefits will be after 10 years, but that’s the design. You want that money to keep growing and growing and growing,” he said. “I think they’re going to grow immensely when they re-up this, especially with some of the potential rules that they’re putting in there.”

READ MORE: All about alts: The cases for (and against) private investments

1031 exchanges

The tax efficiency of other investments that traditionally seem devoted to different parts of a portfolio apply to some energy plays, too.

While 1031 exchanges usually relate to real estate investments in which an owner who sells one property and uses the proceeds to buy a similar “like-kind” asset can defer the taxes on their capital gains, they work for certain energy holdings as well. Some energy investments meet the strict requirements for so-called real property that would be eligible for a 1031 exchange — even if the original asset is an apartment building. Of course, careful legal counsel about the right structure for the transaction will ensure the highest possible savings.

“It tends to work extremely well for mineral rights,” Iak said. “It works just like any other 1031 exchange, and most people aren’t even aware of it.”

Accounting Today’s readers often weigh in on our articles; some of their ideas and comments are below.

A proposal for accounting’s pipeline problem

I enjoyed your interview with Jennifer Cryder regarding future CPA licensure requirements. I have the solution. It’s really quite simple, but it would ruffle a lot of feathers: Abolish the education requirement. Let anyone take the CPA exam if they think they can pass.
 
As you know, the cost of college has gone up much faster than the cost of living. There are a number of reasons for that, but the reasons are really irrelevant for purposes of finding a solution to the CPA shortage problem.
 
Fewer people are becoming CPAs because they do a cost-benefit analysis. They know that they have other options. At least half of the courses students have to take to get a college degree are irrelevant for purposes of preparing for the CPA exam, and many of the liberal arts courses offered these days are more indoctrination than education at some universities.
 
Students only need about 15 classes to prepare for the CPA exam. That’s 45 semester hours. If the 150-semester-hour requirement were abandoned, they would be able to save 70% [(150-45)/150 = 70%] on their college education. And of course, we cannot forget the opportunity cost savings. Since they could enter the job market two or three years sooner, their lifetime earnings would increase by $100,000 or more.
 
University professors and administrators would scream at the thought, but so what? Students who want to earn a college degree would still be able to earn a college degree, but they would not have to. They would have a choice.
 

Technical (and business) certifications have proliferated in recent years. They serve a useful purpose. Students should not be forced to take English literature, poetry, biology, history or political science courses to qualify to sit for the CPA exam. If they have accumulated the knowledge they need to pass the CPA exam, it should not matter how they acquired the knowledge, or whether they have a college degree that is 50-75% irrelevant. Standards would not be adversely affected by abolishing the 150-hour requirement because the exam would remain the same. With more people entering the profession, competition would increase, which would be good both for the profession and for the general public.
 
Requiring 120-150 semester hours of college credit to sit for the CPA exam also has a disparate impact on poor and minority students, since they are the ones who can least afford a college degree. Abolishing the education requirement would be a big boost for them and would reduce the income inequality gap that now exists among the races.

 — Prof. Robert W. McGee 

Broadwell College of Business and Economics, Fayetteville State University

Is accounting’s sun setting or rising?

In response to an editorial asking if the profession was on the rise or in decline, readers shared their thoughts.

There has been a shortage of doctors for years. The answer has become to allow “nurse practitioners.” If there aren’t enough CPAs, non-CPA accountants will be allowed to do certified audits.

Also, technology has changed all of the professions, not just CPAs. Doctors, lawyers and engineers are affected. Technology has allowed doctors to be more efficient and has taken away a lot of procedures that used to be done manually.

The Big Four are the leaders and had better wake up. CPAs require better pay to attract new professionals.

— Ronald Dearman, CPA

Treasurer/controller, Freedom Trucks LLC

Markets are made by supply and demand. The demand side of the profession is as strong as it’s ever been and I believe it will only get stronger. The supply side of the equation is where all the challenges are.

It is undeniable that interest in making a career in the profession is problematically impaired. The only way out is business model transformation to make a career in accounting a dream job again, so that people have the trusted advisors they need.

We think the ingredients for that are corporate governance, strong leadership, ambitious and well-resourced strategies, growth capital, innovative technology, effective outsourcing and modern currencies for rewarding your people. If you do not have these, I think your sun is setting. If you do, the future is very bright.

—David Wurtzbacher

Founder and CEO, Ascend

What unites accountants?

I’m responding to an article that asked what unites people who work under the (broadening) umbrella of the accounting industry. In my opinion, what unites people working in the accounting industry, with all kinds of different titles, and with all kinds of different backgrounds, is three-fold: 

• A desire to help others. Whether in public accounting, public companies or in private firms, advisors seem motivated by serving others. To know that they have helped an entrepreneur, a family, or an organization brings meaning and purpose to their lives. I have found this by asking — a lot — why do you do this work? (I’m not an accountant, but have lived in a CPA firm most of my life, and I wonder … .)
• More specifically, that “service” takes the shape of supporting decisions — whether clarifying information or evaluating options, they are often trying to help a business, business owner, or client with the decisions they are trying to make. I sometimes joke that we are “DSOs” — Decision Support Officers — for the companies we serve. Some of that is financial-related, but a lot of the support is for decisions that have very little to do with finances, and a lot to do with strategy, customers, family members, etc.
• In addition to supporting decisions, my other observation is that what leaders are looking for, and what advisors (by whatever name) provide, is certitude. To help understand what happened, to forecast what will happen, to make recommendations about what could happen — all of that is united by a goal of providing an element of certainty into the planning, evaluation, and decision-making process. 

One other thing I think a lot about is the accounting-related advisor as the “most trusted” advisor. So many issues surround the financial aspects of business and personal lives, it puts the advisor with ties to accounting in a very important and trusted position. Many times, the root issues of a decision are not financial, but money is where the issues “show up.”
Whether it is friendship, fellowship, or feedback, advisors in the accounting industry help the people they work with feel a lot less lonely!  

— Lance Woodbury

Principal, Pinion

The Public Company Accounting Oversight Board imposed over $35 million in fines in 2024.

Last year was a big year for the PCAOB with modernizing standards, ramping up inspections and expanding engagement. The Board particularly ramped up its enforcement program.

In mainland China and Hong Kong, the PCAOB revoked the registration of a firm for repeatedly violating rules and failing to cooperate with the Board’s investigation, and fined KPMG China partners $150,000 for violating audit standards.

In April, the PCAOB also levied a $27 million fine against KPMG Netherlands for cheating on exams and sharing answers, making it the largest civil money penalty in the history of the Board.

Standards and rules

In 2024, the PCAOB adopted new standards, rules or amendments that addressed:

• Quality control at audit firms, approved by the SEC;
• General responsibilities of the auditor in conducting an audit, approved by the SEC;
• Aspects of designing and performing audit procedures that involve technology-assisted analysis of information in electronic form, approved by the SEC;
• PCAOB Rule 3502 governing liability for contributing to audit firm violations, approved by the SEC;
• Usefulness of audit firm registration information;
• Public reporting of standardized metrics at the firm and engagement level; and,
• The PCAOB’s framework for collecting information from audit firms.

Inspections

The PCAOB inspected 232 audit firms and over 920 audits across domestic, annual, domestic triannual, international and broker-dealer audits. Of the total number of inspections, 79 firms and more than 220 audits were international.

The PCAOB published more staff publications than ever before, enhanced its website with new online charts, issued 2023 inspection reports early, and launched new resources for small firms.

Engagement

The Board hosted 13 events to engage with stakeholders in 2024, including conferences, webinars, and advisory and working group meetings. It also held one-on-one meetings with over 250 audit committee chairs. 

Additionally, the PCAOB held four iterations of its Forum for Auditors of Small Businesses and Broker-Dealers event. All events were hosted in person by a PCAOB board member, with chair Erica Williams hosting in Chicago, George Botic in Los Angeles, Kara Stein in Denver and Anthony Thompson in Jersey City, New Jersey. A fourth forum was scheduled to be held by Christina Ho in Miami but was postponed due to Hurricane Milton; it was rescheduled for March 2025.

The PCAOB also selected 676 students from U.S. colleges to receive a $15,000 scholarship in the 2024-2025 academic year — the largest group of recipients and the greatest scholarship amount in the program’s history.

Twelve of the 2024 scholars were selected from Historically Black Colleges and Universities. More than 60% of the total cohort were women and nearly half self-identified as an underrepresented group in the accounting profession.