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Energy Transfer Equity, L.P. Message Board

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  • bidwillie2 bidwillie2 Mar 7, 2010 1:44 PM Flag

    K-1s out today. 2009...near perfect tax shield

    Kinda ashamed to ask this question, but I bought
    1935 units in march of 09 and received 3 distributions last yr like you did. Did not sell any of ETE. I'am lost on what money i made
    on the nice distributions that I have to declare on my 2009 taxes. I had a -2,625 line 1. Did print out all 1-7 ,but no #4 because I did not sell.Do taxes by hand.You mention only 1.2% is taxable-how did you get to that. Thanks for any help.

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    • When I say I do taxes by hand, I mean I use TurboTax. You can either download a file and import it into TTax, or enter the #s yourself into TTax (their K-1 prompts make it easy).

      There are 3 main #s on your K-1 that will involve your taxes.

      Line 1 is income. If this is +, this gets reported as income and taxed as such. Your Line 1 is negative, so that is treated as 0 this year. This is the key to the whole thing...your negative # is giving you a great tax outcome for the year. You cannot use negative Line 1 income to offset + income from other places this year, but you can use the negative number in future years to offset positive income from ETE.

      Line 5 is interest. That gets reported a conventional interest income, and you pay tax on it at interest rate tax. It is probably very small for ETE.

      Line 6A and 6B are dividends (regular and qualified). You will pay tax on the 6B # (at dividend rates).

      Line 5 and 6 arise because ETE parks loose cash throughout the year in investment accounts, and make some interest and dividends on it. This is almost always small change.

      The number you probably worry about...Line 19, distributions, does not get reported to the IRS. It seems odd, but true. TTax does ask you to put in all your K-1 info, but again, Line 19 doesn't go anywhere. Most people think of the distributions a "return of capital". It is actually more complicated than that, but the point is you are NOT taxed on that cash you got this year. Remember though that MLPs provide tax postponement, not tax avoidance. When you sell ETE some day in the future you will 'recapture' all the income you were postponed tax on, and pay the piper at that time. Unless you insist on dying first, in which case your estate gets a full one time step up to the value on the date of death.

      My calculation of the % I am taxed on was done by summing lines 5 and 6 (the total amount I am taxed on), and dividing by line 19 (the cash I got).

 
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