..gains (that is, as long as you have sufficient liability allocations, the distributions will not be "in excess of basis").
The nonrecourse liabilities also give you basis against which you can take K-1 losses - however, those losses are then suspended under the at-risk rules.
Slight detour here: in order for you to take losses, you have to pass through three sequential filters - you have to have sufficient basis under IRC Sec. 705; you have to have sufficient amounts at risk under IRC Sec. 465; and you have to satisfy the passive activity loss ("PAL") rules of IRC Sec. 469. The vast majority of MLP investors who have positive capital accounts have basis as well as amounts at risk, and so the only place where the losses get trapped is under the PAL rules - and the losses trapped under the PAL rules are released when you fully dispose of your interest in that MLP.
If you have a negative capital account and no liability allocations, then you have no basis, and your losses get trapped at the first filter - and you never get to take them (but at the same time your basis is not reduced below zero for those losses, so you don't have to pay for them when you sell your interest, either).
But if you have a negative capital account and nonrecourse liability allocations, then you have basis, but no amount at risk (because you are not actually on the hook for the nonrecourse liabilities, and you have already gotten the full tax benefit of your original purchase price). In this case (which is very rare), your losses pass the first filter (and reduce your basis), but then get trapped at the second filter and suspended on Form 6198. Now this is where it hurts - when you sell your interest in the MLP, the losses suspended on Form 6198 do not get released; they simply disappear. But because they reduced your basis, you do have to pick up additional gain on the sale of your interest for them. The only way to avoid this bad result is to make sure the Form 6198...
.Qualified nonrecourse, and Recourse); I believe your liabilities from OKS will be listed in the first line (if they are in the third line, then you have a non-tax issue, because it would mean the lender could go after your personal assets if the loan went sour). Looking back over my K-1s for the past couple of years, it appears that maybe a quarter of them have nonrecouse liability allocations (the other three-quarters don't have any liability allocations).
In short, nonrecourse liabilities allocated to you do give you basis, but they also bring into the play the so-called "at risk rules" of Internal Revenue Code Sec. 465, which require filing of Form 6198.
More technically, an increase in the amount of liabilities allocated to you is deemed to be a cash contribution by you to the partnership, while a decrease in the amount of liabilities allocated to you is deemed to be a cash distribution to you. Because these are only deemed contributions and distributions, they are not included in the capital account analysis (item L on the left-hand side of your K-1). As a result, your basis is not just your ending capital account, but rather the sum of your capital account and your liability allocation. But this also means that, when you sell your interest, your proceeds on the sale are not just the cash you actually get (and which your broker reports on your 1099-B), but also the decrease in your liability allocation.
For the vast majority of MLP investors who do not have negative capital accounts, this results in a wash (both your basis and your gross proceeds are increased by the same amount), and therefore can be safely ignored - conceptually it is easiest to think of your basis simply as your capital account, because this tracks with actual cash transactions.
However, in a case like yours where you have a negative capital account, the allocation of liabilities does give you additional basis against which you can take distributions without having to recogniz
Bob I respectfully disagree with you. Please post your references to at risk and negative. Alvin was quoting from rock and rent and extremely respected tax professional who uses terms negative basis and at risk for PTP's. Better yet join the investorvillage mlp board. It is free and discuss there. I am going to attempt to post rock and rents post in three messages.
"Msg 12494 of 42804 at 3/24/2010 5:25:45 AM by
The following message was updated on 3/24/2010 5:58:48 AM.
In response to msg 12488 by porciuscato view thread
Re: Capital Gains taxes on Distributions when basis gets to 0 -- revisited
Ah yes, the issue of the allocation of liabilities. I did not get into this earlier, because this can get extremely technical and hairy, and applies to very very few MLP investors. However, it appears you are one to whom these rules apply, so here is the fuller explanation.
Warning: the following is extremely technical and mind-blowing. If you are a regular MLP investor, in 99.99% of cases this will not apply to you.
In most cases I believe an MLP will not allocate a share of liabilities to you, because in general, in order for this to happen, you have to be actually on the hook for those liabilities (and the whole idea of being a "limited partner" or "limited liability company member" is that you are not on the hook for anything beyond your original purchase price).
However, there is a class of liabilities that can be allocated to you even if you are not on the hook for them, and these are so-called "nonrecourse liabilities" (which are liabilities for which nobody is on the hook; they are secured only by assets or collateral, and if the collateral turns out to be insufficient, the lender is SOL and does not have recourse against anyone else). If you look at item K on the left-hand side of your K-1 (which is labeled "Partner's share of liabilities at year end"), you will see three lines there (for Nonrecourse,...
go to investorvillage mlp board (it is free to read) and follow this Msg 36962 of 42800 by alvinsch00
Re: Tracking MLP basis
Long ago in msg #18783 I gave an example of how I keep track of basis. However, once your basis goes negative you have to calculate the items in a IRS specific order (add all positive items (including gains in non-recourse), figure any distributions in excess of basis, then if there is anything left you can utilize any negative numbers (and decreases in non-recourse), this can occur in the year of transition from positive to negative basis where you need to prorate, otherwise you need to enter zero for negative numbers on K1 as I understand).
Yes, I'm the one who keeps pounding the table for basis including non recourse loans, while at-risk does not. By all means utilize intangible drilling costs to generate additional loss even if it ends up being deferred by passive activity limitations (note this reduces your basis). While they warn you about IDC causing AMT issues this only is an issues if IDC makes up a very large portion of your overall reported income (or if you are one of the major integrated oil companies that don't get the big fudge factor we get).
Msg 29115 of 42800 at 3/8/2013 by alvinsch00
Re: Need details on how to remedy a depleted Ending Capital Account, pls and tnx
According to most tax experts I have read, (especially post 12494 by rock-n-rent), you do NOT have to pay cap gains if just your at-risk basis goes negative (i.e. your capital account), tho you will have to file form 6198 which will limit any new carry forward losses. You only have to start paying CG's for "distributions in excess of basis" when your "adjusted" basis goes negative. This adjusted basis (unlike your at-risk basis), also includes "partners share of liabilities" on your K1 for both recourse and non-recourse liabilities...."
iv bry board Msg 151276 of 151276 at 10/30/2014 9:27:13 PM by
financial hedging caused recent oil losses
Financial Hedging Caused Recent Oil Losses: MS -- Market Talk
Published: Oct 30, 2014
There's been a lot of murmuring in crude markets that large put option volume contributed to the sell off that has brought oil prices down about 25% in recent months. Now Morgan Stanley is out with a note to quantify that: The last $10 decline in oil prices was caused not by fundamental shifts in supply-demand balance but rather complex option trades that forced futures selling volume into the market. Banks and other traders sold puts to producers to help them guard against falling prices. As prices fell and those options came into the money, banks were forced to sell even more futures to hedge their position. "Options markets have distorted oil prices in recent months," firm says
go to investorvillage mlp or bry board to view or to rrc site presentations
iv mlp board Msg 42715 of 42717 at 10/28/2014 6:58:21 PM by
In response to msg 42691 by whatdoiknow view thread
Re: Eroc restarts distributions at $.28 (.07 quarter) an effective 8.2% yield. To buy back $100 mm in units
YES, YES and again YES.
ed from my 25 years of Oil and Gas industry experience, the incremental well economics IRR is generally greater than 20% and in many many cases approaching 100%. this is needed to capture costs not included in incremental well drilling economics such as leasehold costs, G&G, dry holes, G&A, etc
hi jdm. simplified value creation model for year ending 2013 put BBEP at the top of the E&P MLP's and with consolidation with QRE should make it financially stronger. ARP is a potential turn around story. I own both. Sold VNR and LInn in past few months
more comments on how totally expensive buying back units are at 8.2% yield
iv mlp board Msg 42691 of 42717 at 10/28/2014 6:04:01 AM by
In response to msg 42683 by moneyonomics
Re: Eroc restarts distributions at $.28 (.07 quarter) an effective 8.2% yield. To buy back (up to) $100 mm in units
they are going to buy back their own units @8.2% yield when other e+ps are trading at 13%+?
ok, i have to ask, do this management have rocks in their heads?
Is it a 2015 dropdown.
From RBN on Oct 28
Devon Energy is a leading North American oil and gas producer with drilling acreage in several oil and gas shale plays as well as heavy oil production in Western Canada. Devon holds significant acreage in the condensate and wet liquids window of the Eagle Ford in DeWitt and Lavaca Counties that the company expects to produce an average of 46 Mb/d of oil in 2014 (mostly condensate). During September 2014, Devon brought online the $70MM Victoria Express Pipeline. Devon owns 100% of this 56 mile crude pipeline that connects the Blackhawk delivery terminal in DeWitt to a barge terminal at the Port of Victoria (see map in Figure #1). Victoria is about 86 miles North East of Corpus, linked by a canal to the Gulf Coast Waterway system at Port Lavaca. With Corpus Christi marine docks crowded with barges and tankers, Port Lavaca is an increasingly popular alternative with Eagle Ford shippers – our friends at ClipperData estimate average volumes over 100 Mb/d leaving Lavaca so far in 2014. The initial capacity of the Victoria Express pipeline is 50 Mb/d – expandable to 100 Mb/d. The Devon Victoria terminal has 300 MBbl of storage capacity and can load crude onto coastal barges that navigate the Gulf Coast waterway to Houston, Beaumont, Louisiana as well as the East Coast. Devon expects to drop the Victoria Express asset into their recently formed Master Limited Partnership (MLP – see Masters of the Midstream for more on MLP structures) Enlink Midstream – a combination of the former Crosstex Energy and Devon’s midstream business
chrx looks to not be that samll if these calcualtions are correct
from iv mlp Msg 42686 of 42687 at 10/27/2014 10:00:15 PM by
In response to msg 42682 by mdc7 view thread
Re: Antero Midstream Partners LP IPO
nearly $800 million raised if price in the range? And that's only 25% of float? So we're talking about a 3.2B market cap at IPO. I haven't looked at S-1 but did anyone think that Antero's midstream assets were that large? I certainly did not."
if you cannot get at least 15% on an oil and gas project (most require more than 20% to absorb fixed costs, etc) you do not drill it unless it is a demand well (ie to hold acreage).
bob see mu calculations on elephant in the room
ed, from an economic standpoint cheapest may not be the most valuable. if they buy back those units (30.5 mm units at $3.38 with $100 mm) the will save approx $8.54 mm a year in distributions. In my simple spreadsheet calculations (using 15% as the expected return on oil and gas reserve production) that results in a "negative NPV of $48 mm" and a "negative IRR of nearly 2%" so they will need to increase and stabilize the unit price at a level to not only offset the negative $48 mm but to tern it positive so when they go to reissue those units less the 4% to 5 % discount they will pay on reissued units and hope they can buy reserves for the same price they could today. Again very risky assumptions.and if you believe the unit price will increase from $3.38 of today they will buy back less units and save less in distributions so the NPV and IRR will only get worse .
Again just my simple view of why the elephant in the room
On the $100 mm unit buy back if the unit price does not respond significantly and they cannot use an increased price as equity cash the NPV will deteriorate quickly in buying new properties. Risky move betting unit price will increase and hold to use future equity to replace $100 mm cash.
yes eroc buying back units and with lesser proportional debt but how long will it trade at a ~3% yield premium.
Also the big elephant in the room is why buy back the units when they could use the $100 mm to buy some current discounted reserves? On the $100 mm unit buy back if the unit price does not respond gratly and they cannot use an increased price as equity cash the NPV will deteriorate quickly in buying new properties. Risky move betting unit price will increase and hold to use the equity to replace $100 mm cash.
Msg 42682 of 42682 at 10/27/2014 4:45:23 PM iv mlp board
The following message was updated on 10/27/2014 4:45:57 PM.
Antero Midstream Partners LP IPO
With the filing of Amendment No. 8, this IPO is scheduled to trade 11-5-14.