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Kinder Morgan Energy Partners Message Board

  • lpiper4 lpiper4 Jul 26, 2011 9:35 PM Flag

    Does KMP generate UBTI?

    Considering an investment for my Roth IRA and wondering about the accounting consequences.

    Thanks in advance for your input

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    • I've found that most of the US trusts (with exception of BPT) can give you a tax loss in the first few years you hold them. But unless you keep buying more, that large depletion eats into your cost basis and reduces the amount you can claim in later years. In other words the depletion deductions are quite heavily front loaded. Which is fine, of course.

    • Depends on how you look at it and the specific trust. There is usually a good amount of depletion in the trusts such that most of the distribution is tax deferred and there are even some (PBT for example) where you can actually have a net loss (something you can't do with an MLP). Taxes are much simpler with a trust. Of course in an IRA, thats not a concern.

    • Not 100% sure but think because its a Roth, no tax is due whether or not it has positive UBIT over $1000. However, not sure about the capital recapture after the value is depreciated. Probably still escapes taxation but best to ask your Accountant.

    • Go for the nicly discounted CEF (MTP) instead in an IRA. KYE perhaps the best but the premium of +10%? MARPS and FRHLF also good IRA choices. They can be traded as a pair in this hurricane season. Selling the Canadian on US Gulf O&G production disruptions and buying the MARPS. Swapping a bit back into FRHLF when MARPS hits near new peaks. ENY not such a good dividend but works the same as for a FRHLF. ENY will of course be back to a $23 handle as the winter sets in and oil moves toewards $100 again. ENY a lever on oil and higher oil driving the Loonie higher. Longer term CQP and TGP focusing on the Japan rebuild of power plants and the exports of North American sourced LNG from Kitimat and Sabine Pass, look better than KMP.

      Keeping in mind that Canadian distributions now from LLCs like FRHLF are exempt of Canadian holding when held in an IRA but not when held through an intermediary like ENY which then pays the Canadian with holding with in the fund accounting and distributes less the taxes and fees.

    • In theory KMP can generate positive UBTI (as can almost any energy related MLP).

      However, for at least a decade it has not generated positive UBTI for any KMP investor I have heard from (including my families own holdings).

      I am running the InvestorVillage UBTI data project this year, which gives me access to over 1000 UBTI results from 2010 (on 78 MLPs). No one in the project's 4 year history has reported a positive UBTI from KMP. That includes one person who bought KMP in 1991, and has not reinvested since. That person are the highest of the 21 KMP observations; they got -$0.03 in UBTI on their 2010 K-1 from KMP. Another investor bought in 1993 and also has not reinvested; they got -$0.45 per unit. The 18 people who bought KMP between 2001 and 2009 (and owned for all of 2010) got between -$2.50 and -$10.81 per unit. KMP shows a clear pattern of the longer you own the UBTI gets steadily larger (i.e., closer to $0). So the people who bought in 2002-04 got between -$3 and -$4 per unit, and those buying in 2008-09 had -$8 to -$10.

      I took over running the data management side of the IV UBTI project this year from Factoids, who created the project and ran it for 3 years. I believe the project has collected a unique data set; real world investment experience on UBTI from energy related MLPs. For most energy MLPs, the amount of UBTI allocated is very close (often +/- 2%) to the taxable amount on Line 1, so the UBTI project data can provide a lot of key information to MLP investors in taxable accounts as well. Bottom line; some MLPs are very "UBTI friendly" and hence also "tax friendly", with the majority of investors getting negative UBTI. For example; of the 35 MLPs for which we have 10 or more observations, 8 of them had perfect scores...everyone reported a negative UBTI.

      The 8 MLPs with perfect scores are

      20 of those 35 MLPs with 10+ observations had 90% of the people with negative UBTI.

      At the other extreme, there are 2 MLPs where everybody had positive UBTI (ENP and VNR), and 3 more with at least 90% of the people having positive UBTI (DEP, BBEP and EVEP). The UBTI-unfriendly MLPs are generally upstream (exploration and production) MLPs, including 4 of the 5 I listed. The E&Ps get significant tax advantages from additional tax deductions and credits related to extraction related costs (i.e., intangible drilling costs) and depletion allowances. That helps the taxable investor, but not the IRA investor who is usually stuck with whatever the MLP reports as UBTI (even if the MLP could have calculated UBTI differently but did not).

      While run on InvestorVillage, the results of the project are available to anyone who contributes their data. This is a 100% voluntary project (nobody gets a dime for this), and InvestorVillage's only involvement is we talk about it at their MLPs message forum. We ask for relatively little data, and we protect privacy by asking for UBTI data in the form of UBTI per 100 units doesn't matter to us if you have $500 or $5 million invested in an MLP. We need very little data (such as UBTI/100, date bought, whether you sold or reinvested). With K-1 in hand, gathering the data for each MLP you own takes less than 5 minutes.

      As an additional incentive to participate in the UBTI project, Factoids sends periodic MLP related data analysis (via email to non-IV members), including monthly data compilations and his own analysis into MLP investing fundamentals.

      If you are interested in joining the UBTI project, please contact me at, or the project directly at (you get me either way). The strength of the projects results is entirely tied to the amount of data we get in, so we ALWAYS want more data!!!