While I found the PTP link to be of interest, I did not find the UBI reference. UBI is income outside of the specially advantaged area. So if the company has an ice cream stand on the side, those profits are UBI. The K-1 would list the UBI. In my limited experience the UBI portion is small or non-extant. But if there is UBI, you could have to pay regular income tax. http://www.fool.com/taxes/2000/taxes000908.htm gives some info, altho I think they over-make the point. The master partners are aware of the disadvatages of UBI and generally stick to the primary business.
Is it good to put PTPs into an IRA? I don't find it clear cut, but I have not. On the plus side, there is little worry of having to track the tax things other than UBI if that happens. So it is simple, and simple has advantages like not worrying about filing state taxes in a collection of states. On the other hand, the PTP tend to be tax defered investments anyway, so until you have received sheltered distributions that have given all of your money back, you are not paying a lot of taxes.
I am not expert in this area by any means, so if somebody can correct or improve on what I have said, please do.
I wondered who in his right mind would put a PTP into a margin account where it could be lent out causing weeping at tax time. If that PTP were in an IRA margin account, that would not be a problem. In fact, it would seem to get away from the UBI problem if it were actually lent out! I don't think that most brokers let you have margin accounts in an IRA, so this may be all theoretical. But I still wonder where the shares for shorting come from. Is it unsophisticated investors, or is it from mark-to-market dealers?
rudfox - The following is from the ptpcoalition FAQ section:
"Can I hold PTP units in my IRA?
Yes, subject to some limitations. Income from a PTP received by a tax-exempt organization or a trust like an IRA may be considered unrelated business income@ (UBI) subject to tax. However, it will not be taxed as long as the amount of income received from the PTP and all other sources of UBI does not exceed $1,000 in any year.
Even if the IRA does have to pay some tax on the PTP income, the high yield provided by the PTP would most likely make this a highly favorable investment on an after-tax basis."
Thanks. There is a portion in that same area that I disagree with: "But the people who send you the K-1 won't just give you a bunch of numbers and expect you to know what to do with them. They will give you a complete package that will show you where everything goes on your tax return." Dream on.