Client bought interest in oil well partnerhip Dec 2005 investing $16,000. K-1 for 2005 showed $12,000 IDC. No problem. Elected to write off in one year. After 3 months, well turned into pumping mud, and interest terminated about March 2006, client got distribution of $1,620. K-1 for 2006 shows IDC of $16,000. Seller of investment is telling client he can write off entire $16,000 investment this year. Is there a special treatment of a "dry hole?" Where is this written? I have an old RIA Master Fed Tax Manual which says "deducted IDCs are recaptured as ordinary income on disposition of the oil or gas well," and refers to IRC 1254, which is titled "Gain from Disposition of Interest in Oil, Gas....etc." This will obviously be a loss. Does that make any difference? My view is that he has a basis of $16,000 - $12,000 - $1,620 = $2,380.