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Kinder Morgan Energy Partners Message Board

  • brkezach brkezach Mar 22, 2013 10:28 PM Flag

    effect on mlp's if tax law changes

    i was burned by change in canadian tax law in 2006. anybody know what may happen here

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    • Who own MLP in the USA ? Many including our elected House and Senate reps and their supporters. Take old Harry Reid and the big wigs out west who back him. For the tax to change the political parties would have to agree on something. I think KMP will hit $100+ this year perhaps this quarter. Worry about phantoms and sell your shares I will take as many as I can with me over that $100 mark and the split afterward.

      • 1 Reply to mr.phil2u
      • mr.phil2u, thanks for posting.

        I think you are correct.

        The reasons I do not think MLP tax law changes will occur are:
        1. The United States needs energy infrastructure at a time when more gas and oil are being produced in the US. By 2020 the US is expected to surpass Saudi Arabia in oil production.
        MPL tax structure encourages the expansion of these companies and discourages short selling.
        Congress does not want to #$%$ energy infrastructure development.
        2. If the gov't. eliminated the tax break for MLPs, I think it was the CBO that estimated the gov'.t would have saved $1.3 billion last year. $1.3 billion for all the MPLs combined is a drop in the bucket considering the $ the gov't. need to fund programs.
        3. Owning MLPs is no cake walk. Yes, distributions are not taxable (which is a benefit) until cost basis reaches 0, after which regular income tax rates apply to distributions.
        At death is there a real benefit to MLPs where market value can be passed onto heirs.
        Lots of people sell their MLPs and when doing so, even if they have held the MLP for 5 years
        (which for a regular stock would make it a long-term capital gain), pay their full income tax rate on the sale proceeds. So the gov't. does not make out all that badly.

    • "anybody know what may happen here"

      Are you asking if there are any members of the congressional committee for taxation reading this message board? Otherwise, who exactly could know what will happen?

    • Thanks for posting brkezach.

      Can you please let us know what happened to the distributions of the Canadian MLPs you owned?

      Were they cut by 50% ?

      Did some maintain their distribution% at the same level after the law changed ?

      Thanks very much for your experience.

      • 3 Replies to sprintt727
      • sprintt !!! This only message that would allow a answer. The driver for KMP in my opinion is the probable approval of the Keystone Pipeline. Upon approval KMP and many other will take off like a rocket.

        Sentiment: Strong Buy

      • Lizahuang !! Your worst case Tax scenario would only occur in the PRC or Russia to political opposition.

        Sentiment: Strong Buy

      • Most had an immediate 30% haircut which extended to 50% over a period.
        Most did cut their distributions at least 50% after they converted.
        However the parallel with Canroys is not such a good one.
        For example KMP's tax deferral comes mainly from depreciation (pipelines, etc). So unless they disallow depreciation deductions (which would kill industrial investment in all sectors), it's not clear that MLPs like this would be impacted all that much even if pass through rules were altered.

        The worst case scenario would be if they changed the rules in such a way that all deferred taxes became instantly payable meaning people would have massive tax bills and need to sell MLPs into a crashing sector to raise the funds.