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Linn Energy, LLC (LINE) Message Board

  • porciuscato porciuscato Mar 20, 2009 4:59 PM Flag

    My call to taxpackage support....

    OK, I just talked to the tax package support guys, who handle about 100 different MLPs. The guy checked with the supervisor who said: if the instructions explicitly say you should add the amounts from the two K-1s, it's OK to do. Otherwise, you should NOT.

    That means, for EVEP you should add up the amounts, but for LINE you should enter each K-1 separately!

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    • Actually, my summary didn't have a typo. Line T3 appears not to have played a role in basis.

      Box 1 $29,196; Box 5 $6; Box 10 $41,046; Box 13 J $29,448; Box 20 T1 $22,059; Box 20 T4 $510. Current year increase = $19,251.

      Box 20 T3 seems not used because it is only the amount by which the percentage exceeds cost deletion, while T4 is the basis adjustment for the amount of percentage depletion in excess of cost basis.

    • Badb,

      You are correct that the line items on depletion are confusing. The capital account reflects Line T1, Total Sustained - Assumed Allowable Depletion (this is what you should be deducting) less Line T3 (you had a typo and referred to this as Line T4) Percentage Depletion in Excess of Cost Depletion.
      Why Line T2 for Cost Depletion has another number is confusing but is irrelevent as we are using T1 for our deduction and T3 to reconcile our tax basis to Linn's capital account.

      Therefore, the difference between your tax basis and Linn's capital account is Line T3 and IDC, if you are amortizing (while capital account reflects expensing).

    • Done: Reconciling my LINE capital account for one of the part year periods was interesting.

      The only item I tried to reconcile was "current year increase". It was the sum of Box 1 (ordinary income), Box 5 (interest income), Box 10 (1231 gain), Box 13J (IDC -- in full), Box 20 T1 ("assumed allowable depletion" -- which appears to be percentage depletion) and Box 20 T4 ("percentage depletion in excess of cost basis").

      So it appears that LINE's basis calculation uses percentage rather than cost depletion, then adjusts for excess of percentage over cost and deducts the full IDC (without regard to whether I amortize or expense it).

      I remember someone saying that Roger Conrad of Personal Finance said MLP accounting was simple. That is misleading to say the least.

    • Porc,

      Yes, expensing IDC should lower your taxes as you are getting a larger deduction because you have larger income (although may be sheltered by capital losses)by way of the 1231 gain.

      However, it is my understanding that this becomes a binding election for all your MLP's for all future years (Pub. 535, Business Expenses,page 20). This could bring into play AMT. This should not be a problem unless IDC exceeds 40% of AMT taxable income in a future year. This, of course, depends on your income and how extensive your investments are in MLP's exploring and developing oil and gas. Pipeline MLP's, generally, don't have IDC.

      It appears that Obama budget is trying to take away expensing of IDC, so that option may be taken away in future years along with percentage depletion. Just what we need - less incentives to find more oil!

    • DD,

      I did note, curiously, that entering my LINE K-1s actually decreased my overall taxes.(!)

      I tax-loss-harvested some other stocks so my net capital losses were pretty large. So this agrees with what you are saying.

      I'm expensing IDC, because it appears to be reducing taxable income more right, rather than in the future.

    • Badb,

      The capital account of Linn's K-1 includes deduction for IDC and cost depletion. Therefore, if taxpayer deducts IDC his basis upon sale will be the same as the capital account adjusted for any percentage depletion in excess of cost depletion. If he is amortizing IDC he will have a further adjustment for any IDC not fully deducted. At first blush you might think it is better to deduct rather than amortize IDC to get the full deduction over the years when the units are sold. However this appears to be a "wash" in that any additional IDC deductions will result in additional recapture ordinary income in the year of sale.

    • Badb,

      All losses including IDC and depletion are deductible to the extent of income from that MLP in that year. To the extent they exceed income they are suspended and carried forward. If you look at your TT K-1 for Linn Energy Sch. A on page 3 you will see what losses, IDC and depletion have been utilized in 2008. Those that have not been utilized are carried forward to 2009. Any items not utilized in future years will be deducted in the year of sale.

      As I cited in a prior post it appears that the decision to expense or amortize IDC is a one time binding election for all of a taxpayer's MLP's.
      Amortization avoids AMT but this probable not a problem with an exclusion for 40% of AMT taxable income. In the case of Linn and other MLP's that have a low net income amortization should eliminate that net income. This may not be the case in '08 for Linn because of their large secton 1231 gain.
      Interestingly this 1231 gain permits a larger deduction for IDC against ordinary income while affording capital gain treatment for the 1231 gain.

    • Many thanks to both of you---Maybe I'll get there. Best DB

    • Your observation reminds me of our little discussion about keeping your own basis records. I suppose the MLP can say that they gave the unitholder an opportunity to have the basis corrected and have a corrected K-1 filed by the MLP. I noted that BBEP said something about submitting a request for correction if the K-1 is incorrect in the FAQ section of the tax package.

      When I asked ATN about the differences in UBTI and ordinary loss, here is what they told me (the reply to each question is in brackets << >> after the question):

      Mr. Begley,

      I am writing to ask some questions related to the Form K-1 which I received for my ownership in the company (actually, I own units of AHD, APL and ATN). They will probably have to be referred to tax compliance personnel to get the answer since the questions are technical.

      Box 1 of the K-1 reports ordinary income or loss. Box 13 - Code J reports Section 59 deductions. Box 20 includes depletion deduction information as well as, in Code V, Unrelated Business Income or Loss.

      It appears to me that the Box 1 and Box 20 - Code V amounts do not include the effect of either the Box 13 - Code J deductions or the Box 20 depletion expenses. I would just like confirmation that this is a correct understanding. << This is correct. The reason being, IDC as well as Depletion are flow through deductions taken at the partner level. >>

      The question is really for several reasons – for my taxable accounts, I want to be sure that I am correctly tracking the tax basis and expenses of my investments. For my IRA and 401K accounts, I want to be sure that I correctly track UBTI amounts. << The amount on Line 20V basically includes Line 1 and Line 11f >>


      I haven't been able to successfully reconcile the company's own capital account reconciliation with the K-1, but after seeing that UBTI isn't really completely accounted for, I guess I might well be wrong assume that the capital account is correct.

    • << There is nothing in the passive loss rules about wash sales
      in discussion of a complete disposition. >>

      True, but the rules for stocks are designed to put you in the position you would have been if you had not made the sale in the first place. IN theory, that could be done with MLPs as well. Just treat you as if you never terminated the position.

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