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Linn Energy, LLC Message Board

  • hrbart hrbart Oct 15, 2012 12:52 PM Flag

    Lnco is not a mlp, what will be the tax story? Good or bad ??

    How about for ira acct ?? Thinking about selling Line & buying Lnco for my IRA ?? Not sure I understand Line's reasoning for not just selling more mlp unit's rather than a new company? TIA

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    • MLPs have tax advantages in a taxable account. Since the eighties I have owned several MLPs in IRAs, simply because it was the best investment at the time....generally no more than a couple of thousand shares. I have changed out these investments several times. I never had to pay a tax on any of the distributions or on proceeds of the sales, which were always a profit. That said, if UBTI had ever exceeded $1,000 in a year I would have paid a tax from the IRA on the amount over $1,000. I've never heard of anyone paying a UBTI tax, but surely it's happened. Nearly always, UBTI is very small or a negative figure. One time I did have to sell my OKS from an IRA because UBTI was getting too high. I had owned it quite a few years. Over the years that you own an MLP, certain deductions, like intangible drilling costs for instance, are used up and the UBTI for that particular MLP will begin to rise. You will notice it on the K1s as it begins to rise from year to year. I don't think it is possible that an IRA would ever be taxed on MLPs while you own them, with the exception of UBTI. There may be the possibility of a tax when the MLP is sold from an IRA, but I've never heard of it happening.....and I have been reading MLP boards since 1983. I've also sold six MLPs from IRAs. I think there was some misinformation in some earlier answers to your question. That wouldn't be a surprise, because tax advisers and brokerages often put out misinformation on UBTI and other MLP issues.

    • alan_j_nathanson@sbcglobal.net alan_j_nathanson Oct 15, 2012 1:25 PM Flag

      There are potential tax consequences if you own an LLP such as LINE in your IRA, because they are not shares, but units of LINE. Each year you will receive a K-1 statement for LINE, and you could, but probably not be liable for tax on any UBTI income each year. It also becomes complicated from a tax anglel with LINE, because the income you receive is essentially return of capital, reducing your basis in the units, which I understand is taxable even in an IRA, at the time you might sell the units.

      LNCO, on the other hand is not a Partnership, but a stock like any other. You will receive
      a 1099-DIV each year because the income in LNCO just like any corporate dividend, and you will never be taxed on the income in your IRA. It would seem to me since each share of LNCO consists of one unit of LINE, you would, in my opinion be better off with LNCO in your I do believe this information to be accurate, and I hope it helps. If anyone believes what I have written is incorrect, I would appreciate your posting any errors I may have made here. I also believe that LNCO will consist of about 13 per cent of LINE units.

      Sentiment: Hold

    • alan_j_nathanson@sbcglobal.net alan_j_nathanson Oct 15, 2012 1:25 PM Flag

      There are potential tax consequences if you own an LLP such as LINE in your IRA, because they are not shares, but units of LINE. Each year you will receive a K-1 statement for LINE, and you could, but probably not be liable for tax on any UBTI income each year. It also becomes complicated from a tax anglel with LINE, because the income you receive is essentially return of capital, reducing your basis in the units, which I understand is taxable even in an IRA, at the time you might sell the units.

      LNCO, on the other hand is not a Partnership, but a stock like any other. You will receive
      a 1099-DIV each year because the income in LNCO just like any corporate dividend, and you will never be taxed on the income in your IRA. It would seem to me since each share of LNCO consists of one unit of LINE, you would, in my opinion be better off with LNCO in your I do believe this information to be accurate, and I hope it helps. If anyone believes what I have written is incorrect, I would appreciate your posting any errors I may have made here. I also believe that LNCO will consist of about 13 per cent of LINE units.

      Sentiment: Hold

      • 1 Reply to alan_j_nathanson
      • IRAs and other qualified retirement plans generally are tax-deferred vehicles. Their capital gains and income are not taxed to the plans or their owners as long as the profits remain in the accounts. Owners pay ordinary income taxes on the investment returns when they are distributed.

        However, a retirement plan might pay income taxes on income that is considered unrelated business income. If an IRA earns UBTI exceeding $1,000 per year, it must pay income taxes on that income. The IRA has to file Form 990-T when gross unrelated business income is more than $1,000. It also must pay estimated income taxes during the year if the adjusted UBTI exceeds $500.

        Though Roth IRAs and distributions from them generally are tax free, all tax rules apply to Roths unless they are exempted specifically. Roth IRAs are not exempt from the UBTI rules, so a Roth IRA can be taxed when it earns UBTI.

        The IRA owner essentially will be taxed twice on UBTI. The IRA is a separate taxpayer and will be taxed on the income as it is earned. Subsequently, the owner or beneficiary will be taxed on distributions of that income. The IRA owner receives no deduction or credit for UBTI paid by the IRA, and the tax paid by the IRA does not increase the tax basis of the IRA. For example, an IRA could receive a large amount of distributions from a master limited partnership and pay taxes on part of them. Eventually this money will be distributed to the account owner. The account owner will include the full amount in gross income and pay income taxes on it at his rate.

 
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