What I was referring to is with CEQP and a lot of MLPs, they don't show UBTI, but losses instead. But when you sell, you get the recapture showing us as ordinary income and that's where you get hit. The $1000 limit won't be enough to avoid a paying the tax. With this transaction, seems you will have income the first year. But a 1000 units and you have $9000 of gain less less what other loss was generated this year. I do think you would be hit with the UBTI tax, but not an accountant, could be wrong. I think putting an MLP in an IRA will get you eventually. Lots of people got hit with KMP taxes for units in an IRA with the roll up.
Just looked at four of my fav MLPs now, OKE, ENLC, PAGP and TRGP, 8% avg yeild, CEQP again should be $30. Could argue that they should get 7% that OKE has with its 130% coverage. At 7% yield, $34. If it weren't for the tax issue, this would already by $24 or thereabouts.
I think I'm going to hold what I have, use the losses, and think about more purchases after the trans, but that could change if this drifts lower. Some may hold to dist ex date and then sell, but again, I rarely get the short term right. I plan to hold CEQP for years. Let us know what you find out about the bond buy back income issue.
Agree, just politics of the moment, that will prove to be the wrong decision for consumers long term.
Again, suspended losses could offset the ord income and cap gains with CEQP suspended losses and losses from other investments. If CEQP rockets after the trans date, buying now would have been a good buy. I'm lousy at short term machinations.
Found this from a Deloitte summary. Am assuming that the discount value is ordinary income. Couldn't find CEQP bond quotes, but would assume that the discount has shrunk since the ED announcement. They receive $975mm, have a revolver of $735mm, so $240mm potential purchase of debt. Don't know but assume bonds selling for 80% of par, could buy back $300mm of debt, $60mm of value, $60mm/69m units, 87 cents of income at reg rates plus $8.70 of long term cap gain. Assume 25% and 15% rates, around $1.55 of tax liability. Again the 80% was just hypothetical. $1.55 doesn't seem like it's big enough to scare someone off if the real value is $30 to $40. But I have been accused of letting tax over ride the economic, I hate to pay taxes.
The income tax consequences associated with an issuer “buying in” its outstanding indebtedness at a dis
count are relatively predictable. The amount of the discount is generally included in the income of the issuer for tax purposes as cancellation of indebtedness (COD) income, unless the issuer is under the jurisdiction of a bankruptcy court or is insolvent – that is, to the extent the issuer’s indebtedness exceeds the fair market value of its assets. If the debtor is a partnership for tax purposes, these exceptions apply only to the extent that a partner is insolvent or bankrupt.
danny, I am getting up to speed on some of the issues but I think you could offset the capital gains from the ED transaction with losses from other investments, looked at Sched D and think that is the result. If you have held for couple of years, the suspended losses should offset the gain. I have some unbooked losses that I could use to offset the gain. Doing that would accelerate the use of the loss. I usually don't do well when I let the tax implications over run the investment decision. But CEQP imo should be higher than $18 with a $2.40 dist and 140% coverage and comm prices coming back.
I am not sure about the bond buy backs, seems it should work for that also but someone else here could give an opinion.
On the call, the CFO said assuming June 1 close and think Phillips said in second quarter. I'm not sure they will give you warning. I was thinking about selling now and buying back after 30 days but could get tripped up if transaction occurs before then. Selling now would avoid gain, able to take losses now. And then taking the chance that it doesn't run up too much the day after the transaction, if that is when the gain is credited. Not an accountant so just guessing.
Or you get ignorant, simply not knowledgeable, that bid up the units before the trans, the 13% yield with 140% coverage, can't find that anywhere else in the midstream sector.
I was thinking that also, have some losses in energy that haven't taken, say you have 1000 units, $9 per unit gain at transaction, $9000k long term gain, match it with loss from another energy stock. Should work. Someone else mentioned options but that could get tricky, when and how much does it move after the transaction. For holders who have been here a couple of years, just uses the suspended losses, not sure I'd sell those units. Seems you would recover the $2 tax liability fairly quickly, unit price I'm guessing moves up to $30 by end of year assuming oil keeps gradually moving up.
I think you are right, cursory look at the treatment, not an accountant so who knows, would be 1231 gain, flows through 4797 form to Sched D long term cap gain. And then it's individual treatment, probably 15%, could be zero to 23.5% with the investment income tax. $600mm for the sale, who knows the bond buy back, your $8.70, tax zero to $8.70 x 23.5%, $2.04. I have losses that cover most of the gain. Buying now, seems you incur liability, on transaction closing date? IR hasn't called me back, not sure they will comment on tax but will see. So you buy today, have to assume cost is $18 plus the $2 tax. Feel free to refine.
WPZ has a bunch, 60% LP units owned by WMB and the IDRs. Thought about that today, earnings have taken back seat. Will see what I can find, I don't usually spend any time with quarter projections. And the analysts get it as a group get it right or don't. Seems right now the more important factor is oil staying in the $40s and the ETE deal, the market sure acts like it is dead.
Absent the tax issue, what would you pay for $2.40 dist with 140% coverage. At least an 8% yield and maybe 6% as comm prices move up. That's $30 to $40. Even with no growth, 13% is a very healthy return. Not much downside today but would bet most wait out the transaction.
Curious why they could not get the tax opinion, one comment someone made, is the cash portion is now so much bigger than when originally made, 20%ish to now 30%ish. Ironic, the deal is in jeopardy because of the tax opinion, ETE's unit value goes up and they can now issue the tax opinion. ETE craters again? Deal off. This is a mess that will be worked out one way or the other.