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Kinder Morgan Energy Partners, L.P. Message Board

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  • donedealer donedealer Sep 7, 2012 9:13 AM Flag

    Zero basis MLP.

    You are wrong. Read IRC Reg. 1.704, on partnership distributive share, and IRC section 731, extent of gain or loss on distribution. Then read Intructions to Form 1965, page 2 worksheet for determining basis, line 3: increase basis for your SHARE OF OR assumption (probably haven't assumed any) partnership liabilities as shown on item K of your K-1.

    If you can't handle this then speak with a qualified CPA or tax attorney, one who has filed tax returns with zero basis and handled IRS audits.

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    • Dealer, the instructions to line 3 of page 2 of the Form 1065 worksheet couldn't possibly be referring specifically to limited partners in an MLP. The MLP itself has to include the limited partners share of liabilities in the partner's basis in order to allow the partner to receive the full depreciation deduction for the portion of the MLP assets that are financed by debt. I suppose the limited partner would count his share of the debt if he was trying to figure out how his K-1 capital account balance was determined.

      For most MLP investors trying to tie to or figure out how the K-1 capital account is calculated is a waste of time. The investor plans to run his balance to zero anyway. The investor just needs to keep track of the non-taxable cash distributions that he receives. Its only these distributions that reduce the investor's basis. The investor's share of ordinary losses does not reduce the unit holders basis. This was your original concern. So your answer is, it will never happen. Ordinary losses alone will not reduce your tax basis one penney. You just keep track of them, hold them in suspense, and apply them against future ordinary income.

      Its not clear to me that cash distributions received after the basis reaches zero are always taxed as long-term capital gains. Logically, that wouldn't happen until all the depreciation recapture has been recaptured. Its amazing how much conflicting info there is on the internet.

      Dealer, you are just starting out owning (I assume you are owning) MLPs. So keep an open mind. As the years go by, the answers become apparent to you. Don't dismiss out of hand the conflicting feedback that you are getting, like the airplane pilot who doesn't believe his gages while flying at night.

      There are simple ways to handle MLPs for investors in MLPs like KMP that only generate losses (for most unit holders) and who intend to hold for the rest of their lives. Keep all the K-1s neatly in a shoe box and work up more specific calculations if it ever becomes necessary.

      • 1 Reply to epholder
      • Your adjusted tax basis is simply the sum of the ending balance in the capital account plus your share of debt (including non-recourse deb)t. Use this basis for detemining whather there are distributions in excess of adjusted basis. When shares are sold you are exiting the partnership and your share of debt is zero.

        I understand that this is not logical but it is the law.

        PLease stop trying to rationalize an answer, TALK TO A KNOWLEABLE CPA OR TAX ATTORNEY. He or she will not only confirm this but will probably also give you some
        taxpaying ideas.

    • KMP had NO debt in 2009 or 2010. Minor amount of non-recourse debt in 2011. If your CPA is telling you that as a limited partner you can add Non-Recourse debt to your capital account, it is time for a new CPA, or for to listen more closely to what he/she is saying.
      What I don't understand is if you are so sure your CPA is right, why are you trolling these boards for answers that YOU already have.

      • 2 Replies to curiousasmecat
      • curious,

        It was not my CPA. I am a CPA (quit practising many years ago) and do my own taxes.
        However, my knowledge of MLP taxation is limited and I finally consulted with my attorney (multi-state offices) and discussed this with the head office parner specializing in partrnerships. Like you, I was still skeptical about the answer on non-recourse liablities and scheduled an appointment with a multiple office CPA firm - met with 3 partners - all confimed non-recourse debt. I then received a phone call from another tax attorney who I had previously called but was unable to reach. I advised that I had no need for assistance as my questions had already been answered. I mentioned the answer I had received on non-recourse debt and was told that it was included in basis.

      • The answers that I have were obtained only this week. If you get a different answer I would appreciate it. Why aren't posters speaking to those who know the tax law? Are they afraid of the facts?

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