The link Laurie provided appears to be broken. The correct link is http://www.naptp.org/PTP101/Basic_Tax_Principles.html, Unstated in Laurie's post (and the referenced article) is that when you own units in an MLP you (the club and each partner) may have tax return filing requirements in every state where the MLP has operations. Some states have a filing threshold of $1 of gross income.

 

We cannot stress strongly enough that clubs should NEVER own an MLP.

 

Ira Smilovitz

 

In a message dated 3/2/2012 10:06:27 A.M. Eastern Standard Time, laurie@bivio.biz writes:

It is also important to understand that accounting for your ownership is not just a matter of adding items to your Schedule K and K-1's.  For example,  the partnership distributions will affect your basis in your investment in various ways depending on the type of distribution.   It needs to be adjusted to reflect this.

Partnership distributions will also affect each club members basis in the club.  The amount by which this will be needs to be determined and the adjustments need to be made.

And,  depending on the type of distributions you've received over the years,  there may be items such as depreciation recapture amounts that will need to be tracked and taken into account when the investment is ultimately sold.

Here is a good writeup about all the tax issues related to MLP's. 

Basis Tax Principles for MLP Investors

But this is only part of the story.  Since you also own it as a partnership,  you need to understand partnership accounting and taxation to really understand how all the items being discussed need to be handled.

I hope that helps everyone understand more about why we say you should not hold these in your investment club.


Laurie Frederiksen
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On Fri, Mar 2, 2012 at 9:43 AM, <IraS1@aol.com> wrote:

All entries from a K-1 that the club receives from a partnership that it has invested in belong on Schedule K. You just move the entries from the external partnership to the corresponding line(s) on your Schedule K, remembering to include any entries to Schedule K which are due to your club's other investments.

 

Page 1 is for entries related to a business that your partnership (club) operated directly.

 

Ira Smilovitz 

 

In a message dated 3/2/2012 9:36:23 A.M. Eastern Standard Time, morganlamarche@comcast.net writes:

I'm trying to report an ordinary business loss from a partnership on the K-1's that are being sent to members.  Do you have any suggestions how to get this (or some other deduction, somehow) reported on the K-1, Part III?  Thanks!