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Enterprise Products Partners L.P. Message Board

  • peggyherrell peggyherrell Apr 8, 2012 9:42 PM Flag

    Holding MLP's in IRAs

    I am amazed by the dead ends one encounters when trying to arrive at the truth to this matter. Finally, after talking with several MLP tax assistance numbers, the IRS, and a tax expert, I have come to terms with my tax obligation.

    First, I am speaking ONLY to my situation. I own 4 MLP's in my IRA account. As long as they are held in my IRA, taxes will be paid on all gains in value and distributions when I make cash withdrawals from my IRA. If you hold MLP's in a regular brokerage account, my comments are not meant for you. That said, the IRS tells me if the tax ID in part II box E is not yours (social security number) it should be an identifier for your broker. They will track your UBTI tax obligations (the number found in part III box 20 noted "V") and when you close out your positions in each MLP, they will be required to pay such tax for you out of your IRA account or contact you as to your UBTI obligation. Since most passive income is negative, it would be unusual to have any tax obligations since it would have to be above $1,000 annually. (Note: you can refer to your annual K-1 to keep track of your future UBTI tax that might come due when you close out your partnership share ownership. If the sum of your dollar amounts Part III box 20 noted "V" are under $1,000 in a given year you will not have any future UBTI obligation for that year). The representative I spoke to at TD Ameritrade stated he had never had to file a tax payment on UBTI to the IRS. Of course everyone you talk to will tell you to speak to a tax professional. He did as well.

    I spoke to a CPA and was told no taxes should be filed from information on your annual K-1's received from MLP's held in an IRA account. Therefore regarding you K-1's that you get each year, keep them on file. The numbers are for your information only. (Note dividends (Part III box 6) and interest (Part III box 5) are not being paid to you thus you have no tax obligation even though you might be told by the MLP to file this on your annual 1040 schedule E.)

    Rest easy. MLP's are good investment in an IRA. I encourage you to run my comments by a tax professional for your final peace of mind.

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    • Peggy - The only problem with your comment is it is not completely true. Positive UBTI is unusual for most MLPs but some produce it regularly and in large amounts. You also need to file a 990T annually to protect losses against future gains and cannot simply use losses to offset gains w/o filing. An example is PAA generated over $4 per unit in 2011 of UBTI for me.

      One needs to be vigilant and proactive with MLPs inside an IRA. This is an area where the IRS has no been active, but is now looking for $$.

      You state both that taxes are due if UBTI is over $1000 and your CPA stating no taxes are due inside an IRA from K-1s. If your CPA said that as an absolute then her/she is wrong.


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