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Williams Partners L.P. Message Board

  • I've owned WPZ for about four years and the Capital Account is now down to where the distributions will be in "positive territory" by the third quarter this year. How do you keep track when the CA goes "negative" (or positive, I guess), and how is it reported next year? Does the K-1 indicate somewhere "excess distributions" or some such?

    Brokerages don't report distributions, so how does the IRS even know when the capital account goes to zero?

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    • I suggest search back on the IV MLP board as it has been discussed many times.
      No, the K-1 doesn't indicate anything special (other than a negative capital account), however it is not so simple as that whether you actually need to pay tax. Specifically if you have non-recourse liabilities shown, that can delay tax liability on the distributions. And there may be other things too. rock'n'rent has written on the subject on the IV board. I'm getting to that point too with a couple of my MLPs.

      Regarding how the IRS knows, I would guess only in the same way you know (ie. whether the capital account is negative, etc). But whether they check this, I can't say.

      • 2 Replies to lizahuang54321
      • Thanks, Liza (and ARB).

        If you haven't come across it yet, I suggest you read Reel Ken's article on Seeking Alpha titled "MLPs - A Reality Check),, It will blow your mind.

      • Rock-n-rent is the expert here. His definitive post was made last year during tax season. I went negative on my EPD about two or three years ago. I did something not exactly conforming to the tax code, but much easier to keep track of the numbers.

        When my K-1 showed a negative I simply paid LTCG on the amount it went negative. I understand I could have waited and deferred longer using non-recourse liabs, but chose to do it this way. That way I have paid tax on anything negative and my adjusted tax basis is then zero (I show an addendum schedule with my numbers with my return). The next year I paid LTCG on the difference between the prior and current year basis as shown on my K-1.

        By doing this when I sell I have both adjustments for the distributions where taxes have already been paid and the deduction for passive losses that were deferred on the sale. Had a very brief audit - auditor not very knowledgeable on MLP taxation, no surprise there - and they accepted by figures noting I paid the correct amount but some of it in a prior year to when actually due.

        I do note that this should not be taken as tax advice and I fully disclose that I know what I did was not conforming to the tax code. The issue is what does conform is still a mystery to me and beyond my skills.


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