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Teck Resources Limited Message Board

  • ltbhdollars ltbhdollars Mar 27, 2011 1:29 PM Flag

    MLP & Tax MisInformation

    1) Basing any financial decisions whether its the next "hot" stock or how to report/file your taxes on any message board information is foolish ... the inaccurate and misleading information posted on Y is mind boggling even though its often presented in a very authoritative manner.

    2) Anyone considering purchasing MLPs should consult a professional CPA who is qualified in this sector to determine the factual answers to the various impacts MLPs can have ... ESPECIALLY if you are considering doing so in an IRA.

    3) I am not a tax preparer, CPA nor financial planner but am an owner of 5 MLPs and do employ a CPA qualified to handle MLPs. I will outline a summary of my personal experience and/or understanding of MLPs as to tax consequences but still refer you to items 1 & 2 above.

    4) I have read numerous reports that a few brokers refuse to file form 990T even though its an IRS REQUIREMENT. I have also read reports from 3 different folks that Fidelity is one of these trustees refusing to fulfill their obligations under the guise they don't give tax advice ... of those that will file, you will find a wide range of incompetency from instance to instance sprinkled with a liberal helping of unhelpfulness.

    5) The broker may (probably will) charge for the tax filing and it can be an unreasonably large fee which MUST be removed/paid by the IRA. Any taxes due MUST be removed/paid by the IRA.

    6) If you hold MLPs in an IRA you must forward ALL K-1s to the trustee (on a yearly basis) EVEN if you have negative UBTI. Filing negative UBTI preserves that OFFSET for that MLP (can't use against a different MLP) and carry it forward so that if that MLP has a positive UBTI in future years the carry forward can be used as an offset.

    7) There is a $1000 deduction against your positive UBTI but this doesn't remove the need to file if your circumstances have triggered the need to do such.

    8) MLP UBTI data is unpredictable, has a wide degree of variation and is extremely individual specific. Even MLPs that have had negative UBTI for many years could suddenly go very very positive.

    9) Now to my favorite piece of misinformation which I have seen phrased many ways and all which encouraged folks to purchase MLPs in IRAs. Words like if you owned a million dollars of MLPs maybe you might occasionally need to pay taxes on UBTI.

    UBTI is a very individually specific, widely varying and UNPREDICTABLE. Two items that seem to be big drivers however are the original purchase price and when a lot was purchased. Without any proof I believe when purchased in relation to when certain MLP expenditures are made is the driver there.

    My VNR 2010 UBTI per 100 units = $305.00
    Another's = $180

    My VNR 2009 UBTI per 100 units = $462.50

    My VNR example easily disproves often repeated statements that positive UBTI is rare and if it occurs its very small. Taking my VNR example a bit further, 400 units purchased in Dec 2008 would have generated $1850 positive UBTI for Tax Year 2009. How HUGE would the investment have had to be ... well my VNR were purchased 12/28/2008 at a cost of $5.31 per unit so 400 units would have been a $2124 ... hardly a large sum.

    10) MLPs are tax deferred/advantaged investment vehicles, why would one even want to trade that for additional taxes and the hassle of dealing with mostly incompetent broker tax departments. There are plenty of REITs, BDCs, bonds, and such that are very suited to IRAs and BENEFIT from the advantages of an IRA.

    I personally think it very foolish to place MLPs in an IRA but if you must then at least be an informed rather than misinformed investor ... seek professional assistance from a CPA whom you have interviewed and determined they are also competent to discuss MLPs.


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    • I'm sure someone will correct me if I'm wrong but I believe the closed end funds holding pipelines (TYY, TYG etc) were designed partially to get around this problem. Yes?
      But I'd be reluctant to buy just now as there's a fat premium. Also I haven't found a fund holding e&p partnerships like LINE.

      • 1 Reply to jerseyvinny2
      • Vin
        buyin an etf or fund to get around the 10-k is a pretty expensive way to do things. The yields on the fund tend to be lower than the stocks we would buy. Could never convince myself it was a good idea. Instead pay an accountant to deal with it. best sc4
        ps for mad money look at sd. their nav about 18-25 and selling at about 12. the stock has moved up smartly but still has much room to go. do your own dd. best sc4

    • This all seems very entertaining, but where have you ever seen anyone suggesting investing in MLPs in an IRA account?

      Appears that some on this board to invest in this manner, but I have seen nothing from suggesting that others do the same.

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