" I guess we'll have to agree to disagree on this stuff."
I think you've missed the character of our disagreement.
I was leaning in the direction that you suggested on these boards this week and last year, when we addressed the issue originally. The reason I insisted on speaking directly with the Schwab tax supervisors was because I did not believe what I heard from the telephone tax specialist.
I wanted confirmation of the way they treated UBTIs for multiple MLPs.
It is too easy to deny what was said by a telephone tax specialist, or to claim I had misunderstood the import of what was said. I thought speaking to a supervisor - and getting full names and locations would suggest that I was willing to press the issue if I ran into a problem with the IRS.
I also wrote to Schwab, as I stated earlier, to confirm the specifics of the discussions we had. I was disappointed when they wouldn't write back - but I understood that they were probably precluded from doing that by their legal department.
Nevertheless, when they acted as they claimed they would - it was confirmation enough for me.
I don't believe you know for certain that your theory of how UBTI is to be handled, which is based on the way passive gains and losses are treated, is absolutely the way the IRS agrees they should be handled.
I suspect you aren't certain because you asked the individual known as "rock-n-rent" on the IV MLP board to confirm your understanding - in this post...
I read his answer very carefully. His thesis appears supportable and if that was all I had, I certainly would not have done what I did last year.
But I had more.
I had the assurances of the tax specialist, and supervisors at Schwab that Schwab handled MLPs differently. And if you read "rock-n-rent's" answer carefully you see that he has never filed a 990-T for a case covering an IRA. Also, he offers a caution at the end of his very lucid post about following his advice "worth exactly what you paid me for it..."
My view is that Schwab has a lot more at stake than does "rock-n-rent" and certainly has more experience filing 990-Ts covering situations of this type.
In addition they are the "agents" for the IRS. They alone can decide when to file the 990-T - according to the way I read the 990-T instructions - and "rock-n-rent" agrees with that. (I can locate the citation if you wish). And it is the broker that must determine how much tax is assessed from the assets in your tax-deferred accounts.
If Schwab is not treating UBTI the way the IRS thinks they should be handled they are foolhardy. I believe, (but without proof), that Schwab's tax people must have taken this to the IRS and gotten a letter ruling from the IRS (at least tacitly) agreeing to the process they follow.
For everyone following this thread I want to reiterate a caution: speak to the tax specialists at your brokerage. And make certain you understand precisely what they recommend, and what documentation they expect from you.
And get as much documentation as you can out of them.
Paul Honore is about the most knowledgeble layman on taxes that I've come across on these boards - and I haven't hesitated to ask him for his help. That's why I was so skeptical of the information I was getting from the telephone tax specialists at Schwab - when their process didn't seem to match Paul's perception of how it should work.
I'm just going to say you cannot net negative UBTI from one MLP with positive MLP from another, just as you cannot do that in a taxable account and leave it at. You're equating stock investments with partnerships - the rules are different. There is nothing to prohibit you from claiming a loss on stocks - there are some quite specific rules that prohibit this for publicly traded partnershiops. I guess we'll have to agree to disagree on this stuff.
"sounds like you're netting negative and postive UBTI across MLPs in Step 1, which is not allowed."
I believe we had this discussion last year.
I also had this discussion with the tax folks at Schwab - while we were debating this issue "on line".
I went over all of the possibilities, including the suggestions you made for handling UBTI - and after speaking to a number of the tax specialists at Schwab and their supervisors - they told me, in their view, how I should handle UBTI for multiple MLPs.
After I was certain that I understood exactly what they wanted me to do I wrote them a letter relating in detail exactly what they told me I could do - everything exactly as I wrote in my previous post.
I could not get Schwab to write me a letter confirming what I had said was a correct interpretation of what they told me. However, they called me and said it wasn't necessary to put it in writing - that was the way we would proceed. And it was - for last year. And I expect it to be the same for this year.
You also wrote...
"For a each MLP,sum the UBTI for all IRA type accounts. If you have unused negative UBTI for a prior year for the same MLP, reduce the total by that amount. If the MLP reports operating earnings without applying depletion and IDCs, use those to reduce to total for the MLP. Do that for all MLPs."
With the exception that I believe you now have changed your mind and agree that you should be subtracting IDC and Depreciation from the number, sometimes identified incorrectly as UBTI, on Line 20V, I believe that is exactly how you suggested I should proceed last year.
I covered that possibility with Schwab. They said it wasn't necessary to do that - it was sufficient to simply add the arithmetic sums of all of the MLPs in a particular type of IRA together.
(BTW - I assumed you meant to write "for EACH IRA type account" and not "for ALL IRA type accounts". I think we both agree that you can't combine Roth and Trad IRA results together for a particular MLP...)
Summing UBTI across MLPs in the same type of IRA makes sense to me. I get taxable income from a number of sources and sum that up each year. Similarly with stock transactions - if I have net losses what's carried over is not what I reported for each transaction on Schedule D, but a number representing the sum of the transactions for the year
I like it the way it stands.
It works better for me than the way you have suggested. And even "more better" it is the way Schwab wishes to deal with UBTI.
Schwab may or may not be correct - but it is the way they have decided to proceed, based on advice from their own tax people (not the ones I spoke to - some mysterious group of tax experts somewhere, I suppose - whom they keep out of the public picture...<smile>)
I'm comfortable with what I do, because I've talked directly with the tax specialists at my broker. Anyone with a question about how to deal with multiple MLPs in tax-deferred accounts should also speak directly to the tax people at their broker.
How so? Sum of positive UBTI is $1500. The first $1000 is not taxed leaving $500 and the negative is ignored (although it can be carried over and used to offset positive UBTI for the SAME MLP next year
It's your broker's responsibility to take care of the paperwork, but they likely will charge you a fee if they do anything. Talk to your broker, it would be a lot cheaper if you do it yourself or ignore it with less than a dollar involved.
Is this all from LINE?
If you have any other Partnerships in the IRA there's a good chance they have negative UBTI and that would offset the LINE UBTI. You are eligible for some deductions which reduce UBTI, but you use up those deductions in a particular Partnership over the years and the UBTI suddenly goes up. Is that what happened to you? It happened to me with OKS and I had to get out of it temporarily. I may get back in this year with new deductions restored(for such things as drilling costs)but in the meantime I missed a very good rise in share price. It also may be true that LINE doesn't have the type of expenses that provide the deductions, or that LINE doesn't consider those deductions when calculating your UBTI. Contact Investor Relations, because if there are deductions available that were not taken you need to notify the brokerage so it won't deduct taxes from your account and charge you for the paperwork. I haven't been in this MLP very long and I'm not that familiar with it. I just know that the "dividends" are terrific and the "share price" keeps going up.
In any case, maybe you should replace some of your LINE holdings with another high-dividend stock or MLP.
Do you mind telling the rest of us how many units of LINE are in your IRA, how long you have owned them, and how much UBTI you had last year?
In answer to your ?. I have 2K shares and have held them the full year.Last year I did not hold for full year.UBTI was $600.
I guess I'll just mail to Schwab and get thier opinion.They do not charge to file form.
Never know when the IRS will get a bug up thier A$$ over .70
The consensus seems to be you cannot offset UBTI from one MLP to another. You can carryover negative UBTI for the SAME MLP to offset positive UBTI though. By the way, LINE seems to be using depletion and IDCs to reduce UBTI this year