Illinois Code § 10

§ 10.

Disposition of natural resources. (a) If any part of the principal consists of a right to receive royalties, overriding or limited royalties, working interests, production payments, net profit interests, or other interest in minerals, oil, gas or other natural resources in, on or under land, except timber, water, soil, sod, dirt, peat, turf or mosses, the receipts from taking the natural resources from the land shall be allocated as follows: (1) if received as rent on a lease or extension payments on a lease, the receipts are income; (2) if received from a production payment, the receipts are income to the extent of any factor for interest or its equivalent provided in the governing instrument. There shall be allocated to principal the fraction of the balance of the receipts which the unrecovered cost of the production payment bears to the balance owed on the production payment, exclusive of any factor for interest or its equivalent. The receipts not allocated to principal are income; (3) except for oil or gas from non-coal formations held in nontrust estates and by legal tenants and remaindermen as described in Section 15 of this Act, if received as a royalty, overriding or limited royalty, or bonus, or from a working, net profit, or any other interest in minerals, oil, gas, or other natural resources, receipts not provided for in the preceding paragraphs of this Section shall be apportioned on a yearly basis in accordance with this paragraph whether or not any natural resource was being taken from the land at the time the trust was established. The trustee shall allocate to principal as an allowance for depletion the greater of (i) that portion, if any, of the gross receipts that is allowed as a depletion deduction for federal income tax purposes and (ii) 10% of the gross receipts, except that that allocation shall not exceed 50% of the net receipts remaining after payment of all expenses, direct and indirect, computed without the allowance for depletion. The trustee shall allocate the balance of the gross receipts, after payment therefrom of all expenses, direct and indirect, to income; (4) Only for oil or gas from non-coal formations held in nontrust estates and by legal tenants and remaindermen as described in Section 15 of this Act, proceeds from the sale of such minerals produced and received as royalty, overriding royalty, limited royalty, working interest, net profit interest, time-limited interest or term interest, or lease bonus shall be deemed income. (b) If an item of depletable property of a type specified in this Section is held on the effective date of this Act, receipts from the property shall be allocated in the manner used before the effective date of this Act, but as to all depletable property acquired after the effective date of this Act by an existing or new trust, the method of allocation provided herein shall be used. (c) If any part of the principal consists of timber, water, soil, sod, dirt, peat, turf, or mosses, the receipts from those resources shall be allocated in accordance with Section 3. (Source: P.A. 100-519, eff. 6-1-18; 100-761, eff. 1-1-19.)