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Inergy, L.P. Message Board

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  • marklibera marklibera Nov 9, 2012 11:40 AM Flag

    Can someone please help me?

    A few things. First, brokerage firms usually don't do "tax" work; they merely report the tax effects of a transaction based on what the issuers tell them to report. Most times, the issuers have to wait until after the year-end, especially on things like whether a distribution is a dividend or return of capital. Second, NRGY should have had a tax discussion in their SEC filings or on their website.

    Transactions among MLPs are different than corporate mergers. In "regular" corporate mergers or sales, if you receive shares of one company in exchange for shares of the shares that you own, your basis in the shares that you owned is proportionally applied to the shares that you receive and the cash-in-lieu payment that you receive for fractional shares is treated as a sale for which you may have a gain or loss (depending on what your basis was).

    I believe the NRGY/SPH transaction was actually 2 steps. First, NRGY sold its propane unit to SPH in exchange for SPH shares. NRGY will either have a gain or a loss on this sale -- they have a tax basis for this unit and they received SPH shares valued at a certain amount. You as a unitholder of NRGY should see a capital gain or loss on your K-1 when you get it in March (I believe that gain or loss reported to you will also effect your tax basis in your remaining NRGY shares). The second step is NRGY's distribution of these SPH shares to you. I do not believe this is a separate taxable event. Instead, your new tax basis in NRGY should be "divided" up between your NRGY shares and the SPH shares that you received. You will get a K-1 from SPH and they will report your tax basis in your SPH shares.

    Hope this helps somewhat. I could be wrong about the treatment of this deal because Partnership tax has its own rules; however I own several MLPs and when some of them have sold properties, they have reported gains on the K-1 issued to me.

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