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ABC TRANSACTION

ABC transaction.Oil & gas. A sale of a working interest from an owner (A) to an operator (B)
in return for a cash payment and the right to another (usu. larger) payment when the well produces,
followed by A’s sale of the right to the production payment to a corporation (C), which pays A in
cash borrowed from a lender on C’s pledge of the production payment. • Thus A receives cash
taxed at capital-gains rates, and B pays part of the purchase price with nontaxable production
income. The tax advantages of this transaction were eliminated by the Tax Reform Act of 1969.

[Blacks Law 8th]