I don't know about any one else, but I intend to pay taxes on any dividends I received from LNCO. I will get a 1099 and the IRS will also get a copy. My shares are not in a retirement fund. Am I wrong?
The 1099-div form you will receive from LNCO will have the dividends reported in Box 3 - "Non dividend distributions". This is because they are a non destructive return of capital (ROC) due to the amount of depreciation allocated to your units. The ROC causes a decrease in your tax basis in LNCO. When you sell, the gain ( selling price - tax basis) is taxed as a capital gain ( long term gain rate if held for a year more). Being taxed at a long term capital gain rate for ROC is a big unique advantage to the LNCO LLC structure. LINE owners ( and MLP stocks) in a similar situation would pay depreciation recapture rate at ordinary income rates for the ROC received. This is a unique tax advantage for owning LNCO long term over Line or other MLP's.
You are technically correct that you would need to pay taxes for any dividends you received on a 1099-div form that are reported in Box 1a (Total Ordinary Dividends). For LNCO, the dividends you received will be reported in box 3 of the 1099-div as a "Non dividend distributions".
You are going to intentionally characterize ROC as qualified dividend? I cannot imagine anyone of this board advising you to do that. Take the lowered basis from ROC and follow the steps when eventually selling.
you are correct in your strategy but you would be better off holding the MLP (line) as the distributions are usually not taxable until you sell. the return of capital changes your basis cost of your shares. Turbo tax Deluxe or Premire can help you pay the correct amount of tax.
If you pay tax on your current LNCO distributions, you will be treating the distributions incorrectly. This could trigger a tax audit. If the IRS sees that you treated this part of your return wrong, it might make them suspicious you may have decided to make up your own tax policy other parts of your return as well.
When it comes to tax policy, just stay between the lines. It will save you a lot of future headaches.
Actually I must retract my earlier post. The filing on the website does say that all distributions are non-taxable and reduce the cost basis. Like someone said in the other thread, just put the info from the 1099 into your tax software and it should do it correctly. It might be worthwhile to separately keep track of your basis, however. I thought owning LNCO as opposed to LINE was supposed to simplify the tax prep!
kbjb, your 1099 will most likely reflect a return of capital which is not taxable but reduces your cost basis. There are several posters here who are way more knowledeable than me, but this thing has already been discussed 50 ways from Sunday and you may catch a lot of flak for this post. Ignore the flak. Good luck.