Keep in mind, though, that the IRS has never really issued guidance on the passive activity rules and publicly-traded partnerships. Sometimes the law is clear, and sometimes we are trying to apply rules and regulations that were designed for investors in small partnerships or S Corporations, and transferring those rules to MLPs.
So, yes, reg 1.469-4(g) says that if a taxpayer disposes of substantially all of an activity, the disposed part may be treated as a separate activity that was completely disposed, but only if the taxpayer can establish with reasonable certainty the amount of your loss and loss carryover allocated to the disposed part. So it’s not designed for a situation where someone sells 98 of his 100 units in an MLP; it’s designed for a taxpayer that owns (but is not active in) 2 related stores and sells 1 of them. But the reg. could be read to apply to the sale of 98 units because you could easily establish that 98% of your losses were properly allocated to the units you sold. I don’t think that’s the correct reading, but who knows? Also, if you purchased units in the MLP on different days, you would not have any way at all of establishing (with reasonable certainty) what portion of your losses were allocated to the units you sold – you just get 1 k-1 that shows your entire loss for the year; it doesn’t break down that loss by the units you purchased on different days. That leaves us with the law.
And the law specifically states that you need a disposition of your entire interest in the passive activity in a transaction in which all realized gain or loss is recognized. And here is where the wash sale rules can kick in to trip people up. If you sell all of your CLMT at a loss and your wife (or anyone else related to you) buys CLMT within the 60 day wash sale period (30 days before or after your sale), your loss is not recognized. So it follows that your CLMT loss carryover is not deductible against any non-CLMT income you might have. And the IRS ruled several years back (incorrectly, in most practitioner’s minds) that the wash sale rule applies when you sell stock personally and your IRA buys the same stock within the prohibited period.
Anyway, it’s fun to think about this. But the IRS still cannot track the passive losses without doing an examination, and even then I’m not sure most agents or examiners would know what to look for. So people do pretty much as they please.
I have no idea how anyone is supposed to do it. I just did a quick check and can't find my original research. I just remember that in 2008, when the law was originally enacted, it had 3 years of application - stocks in year 1 (2011, I guess), then 2 other tranches, each 1 year later. And I have a clear recollection that partnerships were in the 3rd tranche. The third tranche is now supposed to start 1/1/2016 (the brokers screamed and everything has been pushed back a year or 2. I'll look over the next few days and post if I find the specifics, or if I find that my recollection is wrong.
Company says "by March 20". My experience is that they usually leave themselves a cushion, so I would expect the K-1s to be ready a day or so before that.
CLMT handles the K-1 the same as all the MLPs. They don't want to get into too much instruction beyond the required minimum because (1) it will cause more people to call and ask about issues they wouldn't have thought of without the disclosure, and (2) someone will certainly sue them if their tax return is wrong; they will claim that once the MLP tried to go deeper into the instructions, they had an obligation to cover every single possibility. So MLPs just don't want to be in the business of your (or my) taxes. So the call-in people are great at partnership-level issues, like they got your buys and sells wrong. And they're good at some partner-level things, like if a partner dies during the year, and the K-1 needs to be changed to reflect that. But most of them just aren't interested in explaining too much about handling the K-1 info on your tax return. I suspect most MLPs (actually, I think the call-in people are mostly employed/contracted by Deloitte, the firm that the MLPs have outsourced the tax reporting to) instruct the call-in people not to get involved in anything beyond the K-1 itself.
This has to be one of the stranger restatements I have seen. GLP underaccrued for RINs and other obligations each Q during 2013, but the underaccruals all reverse in Q4? I think this means that Q4 GAAP results should be spectacular, but meaningless.
But the market certainly doesn't like the issue.
Question for you - I'm in tax season so I could only take a quick look. It seems to me that the preferred doesn't get ATLS any IDR payments. Have you thought about that?
My point is that if they issued $ 250 MM of common (say 8 MM units) and kept the distribution at 60 cents/quarter, ATLS would automatically get some IDR payment. But my quick read of the IDR description indicates that the IDR computation is only on the common unit distribution. Since APL has not had a preferred before, there's nothing specific that I see, but the language about the IDRs only talks about distributions on the common. Have you seen anything different?
Again, I don't know your tax software, but keep in mind that your gain for AMT purposes will be less than it is for regular tax purposes. On the Sale Schedule (the one that shows the basis adjustments and the ordinary portion of the gain), the column at the far right will show your AMT adjustment, which should be a negative. Different software has you enter this adjustment in different places (I use a professional software package that lets me enter this through Schedule D; other packages will do it differently). At the very least, you can go to Form 6251, look for line 17 and enter the negative adjustment there. It might save you a few dollars.
I was thinking. At the same time, SXC said that 2014 results would be in the lower half of guidance because of cold weather problems. But those problems are in SXC's own operations, not the ones that SXCP owns a piece of. Maybe today's drop was because people didn't notice the difference. I hope.
Yesterday SXC and SXCP announced their plans, now that SXC is freed from its spin-off restrictions. SXCP announced its intention to raise the distribution to 50 cents per Q starting in May. In addition, SXC will drop down (sell) almost all of the remaining interests in the 2 coke plants (that SXCP already owns 65% of) to SXCP. SXCP will then own 98% of those 2 plants. DCF will increase, but that's before financing costs or dilution from new equity sales, which are unknown at present. I would have thought the market would respond favorably, but not yet. But then again, SXCP is already way above where I thought it would be trading.
Sorry, I forgot something that may or may not matter to you. Are you subject to the Alternative Minimum Tax? If the AMT applies to you, there's another thing you have to do.
But this time, it's not the state. But the state won't be far behind. lbany County has delayed (read: cancelled, probably) an expansion of GLP's oil processing facility in the Port of Albany. GLP takes oil from the Bakken by rail to Albany, where it ships it to a refinery in New Jersey (NY Times says GLP owns the refinery in NJ; I'm not sure on that point). The Times reports that 20% of all Bakken oil runs thru Albany County; that sure sounds high. GLP had applied to expand its facility and thought it was a done deal, but not now.
And the state is reviewing all rail shipments of Bakken oil thru NY. Not a good sign, either.
Actually, it's easy, but there are several steps and I don't know your software.
Your broker should have reported the MLP sale under category B (some use a different code for long-term transactions, but it's the code that says the broker did not report the basis to the IRS). That's because the basis reporting rules don't apply to MLPs yet, it's too complicated for the brokers to deal with and they have been given a bye for now.
So, the 1099-B that the IRS got only showed the sales proceeds, not the cost.
So let's assume your original cost was $ 20 and the MLP reported to you on an attachment to your K-1 that your Basis Adjustments were $(8) and your ordinary income on sale was $ 9 (I want to keep the 2 numbers different so as not to confuse.) First, on Form 4797, part II, you report the $ 9 ordinary income. My software allows me to enter this with the K-1 information; I don't know how your software works. However you do it, you want to make sure that your loss carryover from that specific MLP is used to offset the ordinary income.
Then on Schedule D, you increase your tax basis by the amount of the ordinary gain you reported on Form 4797. This eliminates the double counting of the income. So the tax basis you would show on Schedule D would be $ 21 ($ 20 cost, less the $ (8) negative basis adjustments, plus the $ 9 of ordinary income reported on Form 4797).
If you have a bunch of sales of MLPs like I do, the face of your Form 1040 will look strange - lots of income on line 14 (where it carries from Form 4797) and lots of losses on line 17 (where the MLP loss carryovers show up). But that's the way it should be done.
Next year (or maybe the year after; I forget when MLPs will be subject to basis reporting by the brokers), things may be different, but that's how I do it.
That's too simple. People use the cash distributions as a rough guess for the ordinary income amount on sale, but really they are different. Another rule of thumb is that you should get capital gains treatment for the difference between your sale price and your cost, with all of your tax basis adjustments being taxed as ordinary gains. Also a bit simplified.
As a partner, you are supposed to pay ordinary income tax on your share of the partnership's income. And that's where things get confusing. Every MLP has made what's called a Section 754 election. This election allows the partnership to compute tax depreciation deductions based on the amount you paid for your units, not based on the partnership's actual cost for its assets. That's why different partners can have significantly different line 1 losses on their K-1s. If I pay $ 40 for my units, and you pay $ 30 for your units (different days, obviously), I will get a larger loss shown on my K-1 for a given year. But it's only temporary. When you sell, you are required to recapture as ordinary income all of these special tax depreciation deductions. In addition, the partnership itself has depreciation deductions, some of which are allocated to you on your K-1, and those deductions get recaptured when you sell, also.
So for a simple example: you bought 1 share of CLMT for $ 20 3 years ago. During the 3 years you owned CLMT, it earned $ 5 of ordinary operating income, but your K-1 showed losses of $ 3, because of the special tax depreciation deductions that were claimed. Also during the 3 years, you received $ 5 in distributions.
Your tax basis in your 1 share is now $ 12 ($ 20 cost less $ 5 distributions and less $ 3 net tax losses shown on your K-1s). Now you sell for $ 40. Your total gain is $ 28. Of this, $ 8 is ordinary gain (recapture of depreciation) and the rest ($ 20) is capital gains. You also have a $ 3 loss carryover from your K-1s that can partially offset the $ 8 ordinary gain.
There are 3 answers. First, when you have a partial sale of your investment in an MLP, part of your gain is taxed as ordinary income/depreciation recapture. The passive loss carryover from that MLP can be used to offset that ordinary gain in full. Second, the loss carryover cannot be used to offset the capital gain portion of your partial sale. And third, you cannot use any other part of the loss carryover against your other income until you have a complete sale of the MLP interest.
Of course, you can always use the carryover against any other income from the same MLP. But you already knew that.
As to the can you/must you question - the technical answer is that you have to use the loss carryover when you are allowed to. You can't choose not to claim it until a later date, when you finish selling your interest in the MLP. But the practical answer is that the IRS can't track any of this and people do whatever they please without challenge. I know accountants, for example, that claim the same percentage of the loss carryover as the percentage of the units the client sells. So a 10% partial sale would trigger a 10% unlimited use of the loss carryover. Totally wrong, but they tell me they've never had a question from the IRS.
Not an offering yet, but the filing gives CLMT and its investment bankers the ability to sell up to $ 300 MM worth of units when they want to, and in whatever format (ATM sales, private placements, whatever) they choose.
I hope they don't sell units at $ 25, but if the price ever recovers, this will put a lid on the appreciation for a while.
You subtract the basis adjustments from your cost. This increases your gain.
You may know this already, but while you owned CLMT you received cash distributions that were not taxed. Those distributions reduce your cost basis when you sell, and those cash distributions are included in the "basis adjustments" that CLMT reports to you in the year you sell.
In addition, each year's K-1 showed income or loss on line 1 (for simplicity's sake, I'm ignoring the other lines on the K-1, but they also factor into the basis). Almost always, line 1 is a loss that you reported on your tax return but could not deduct against your other income because of the passive activity loss (PAL) rules. So you should have a PAL loss carryover on your tax return that you are allowed to deduct when you sell. The cumulative losses reported to you each year on your K-1 are also included in the "basis adjustments" that CLMT reports to you in the year you sell.
So for a simple example, if your K-1s showed cumulative losses of $ 3,000 on line 1 for all of the years you owned CLMT, and if you received $ 5,000 in cash distributions from CLMT, the company will report to you $ 8,000 of negative basis adjustments in the year you sell. Your gain is $ 8,000 higher because of these adjustments, but you are also allowed to deduct the $ 3,000 of ordinary losses so your net additional gain is $ 5,000, which equals the cash distributions you received over the years.
Confused yet? There's more. In the column next to the "basis adjustment" amount, CLMT will also tell you how much of your gain is ordinary income reported on Form 4797 as opposed to capital gains reported on Schedule D. This amount represents the recapture of tax depreciation deductions that were allocated to you and included in your line 1 loss each year.
Good luck. Hope this helped.
I just checked. Bloomberg had a story about CVX wanting to sell its 80% interest in the West Texas LPG pipeline back in mid-January. So maybe CVX has a buyer that wants the whole thing? Or maybe it's just easier if the 2 partners sell the whole pipeline?
Either way, it doesn't seem terribly material.
APL's recent 10-K states that its 20% investment in the West Texas pipeline has a current carrying value of $ 85 million (same as original cost). Its 20% interest generated $ 5 million of net income in 2013 and $ 6 million in 2012. Cash distributions were presumably very similar to net income because the year-end investment account did not change very much in either year. I don't see that APL discloses its share of the pipeline's EBITDA or DCF.
And I may easily be confusing things, but I thought I had read that CVX was trying to sell its 80% interest in the pipeline. Or maybe it was just something I read on a Yahoo message board?
CS reports are weird sometimes. The report starts by pointing out ALDW's location "well positioned in the Permian", "partially isolated from Gulf Coast product price volatility by a local market premium". But that's been true all along.
They do point out 2 relatively small, very cheap organic upgrades that ALDW is planning this year - increasing distillate production by 2K bpd and being able to sell aromatics due to conversion from conventional gasoline to CBOB production (I have absolutely no idea what the second point means). These should cost about $ 25 MM and generate as much #$%$ 33 MM of incremental EBITDA.
But there's a lot of risk that CS doesn't discuss. Otherwise, why would they rate ALDW Neutral with a $ 22 price target? Also, while they show the 15% yield in their projections, they say it a little differently in the summary. There, CS says "ALDW could potentially pay out a NTM yield of c15% (including the Q2 maintenance impact." That sounds a lot more wishy-washy than the numbers they project.