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Kinder Morgan, Inc. Message Board

  • thewzrdaz thewzrdaz Aug 19, 2014 1:08 PM Flag

    Are MLP Payouts at Risk of Losing Tax Advantages Read more: Are MLP Payouts at Risk of Losing Tax Advantages?

    Search it.... I had investments in the Canadian royalty trusts(similar to our MLPs) years back. I got nervous when the first talk of law changes started and bailed out of them. The majority of analysts were poo pooing changes in the law at the time... When it came it was unexpected and the sector got hammered creating a fantastic buying opportunity. Here's my thinking now. RK likely has the best sources for what's in the hopper regarding the political will to keep or change the tax preference of MLPs here. If the law changes, he would be in a position to swoop in and pick up assets at bargain basement prices with his higher valued KMI stock while competitors will be standing there with their &ojks in their hands (as Sonny Corleone so eloquently put it).. I'm not saying its a certainty, but it could turn out to be a windfall for KMI longer term and I would say the odds are good politicians are going to be looking for ways to increase revenues that also gives them political benefits with the general public. Slamming "oil" companies is always a favorite around election time. Now that one of the pioneers in the practice has shown he can prosper without needing the benefit, it knocks one of the legs out from under its necessity to promote energy independence. The benefit could come coupled to a reduction in overall corporate taxes, leveling the field between partnerships and corporations, making it more attractive for companies to operate in the US and repatriate the huge piles of cash they have stashed overseas...

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    • Look, guys. We are talking about the selling or conversion of the KMP shares. If you sell the KMP shares right now, then the Congress can never make it retroactively applied to the transactions before the law is passed, especially the Republicans are still in control of the House. So there won't be any tax consequences applicable to you. Now, if you want to wait for the conversion, then there are at least two uncertainties:
      1. The conversion may be delayed, or more likely that it could be scrapped or be challenged in court and then be further modified.
      2. Even if the conversion is carried out on schedule as it is, there still could be unknown consequences ahead. Some tax treatment could be changed by only the new interpretation of the IRS, not necessarily by the Congressional passed tax laws.
      In conclusion, a bird in hand is better than two birds on the fence.

      • 2 Replies to ph008
      • I agree with the bird in the hand in a general sense. But its unlikely that the conversion will be scrapped or that court challeneges will have any impact. Owners of KMP are "limited partners" NOT voting stockholders, and the only downside for the limited partners is that tax is due on ordinary income that was deferred. The limited partners also had the choice of investing in KMR instead of KMP, for which the conversion is a non tax event.

      • I mentioned this as a possible benefit to KMI shareholders and an additional incentive for RK to make the change now and get out in front of the "crowd"... He was the first in and looks like the first out. Don't kid yourself, this maneuver isn't going unnoticed in Washington. It blows the "we need the tax advantage to build energy infrastructure" MLP argument out of the water when the biggest operator abandons it. Admittedly the Kinder companies were in a unique position to take advantage of abandoning it. Coincidence? Luck? Or was this planned out in advance by RK like a grand master chess player? Should the laws change down the road he'll be in a position to pick off assets while others are scrambling to get their business structures in order to best adapt to the tax changes. KMI is my largest holding. I'm not counting on this to happen as a certainty. It doesn't have to happen to make KMI a terrific investment. I just know that RK is usually about 3 moves ahead of his competition and do believe the odds are great that a revamp of our corporate tax laws are coming. Whether or not they involve a change in the advantages publicly owned partnerships have over publicly owned C corps is unknown. I won't be the guy in the room with the stunned look on my if they do.

    • No.

    • Relax, the House can't go Democratic for until at least 2022 due to demographics. That would be the first election where re-districting might favor Democrats. In the meantime there can be swings, but likely we'll exit the fall elections with close to the largest Republican majority in modern times.

    • no

      • 1 Reply to purplespyderman
      • Just in case you own other MLPs do yourself a favor and check back to see what happened to the Canadian royalty trusts when they changed the law. Then ask yourself whether the risk is worth it. The research firms were almost unanimous in saying that would never happen as well. Then the political climate changed and it got pushed through in very short order. I'm just saying its a risk... And a bigger one IMO now that KMI has abandoned the MLP structure. The stocks might very well start trading at a discount to reflect the added risk.

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