Author Topic: Publically Traded Partnerships - Like 'em or hate 'em?  (Read 4907 times)

Cheddar Stacker

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Publically Traded Partnerships - Like 'em or hate 'em?
« on: June 12, 2014, 10:57:49 AM »
For those unfamiliar, here's a brief summary of my understanding of these:

They are traded on public markets, but structured as partnerships rather than corporations. This means they don't pay income taxes, their owners do via K-1's which are reported on their tax returns. Many of them are energy (mostly gas) companies like Kinder Morgan Energy Partners, LP.

I'm in the hate 'em camp, and here's why:

-The tax reporting sucks, and I'm a CPA so I have to deal with it a lot.
-Most of them have a crazy amount of data on the K-1's including domestic production credits and depletion.
-Some are split into 3 companies but reported on 1 K-1.
-Because they are partnerships, when they pay dividends they reduce your cost basis, but the brokerage houses don't track it properly.
-Therefore, when you sell, the gains reported on the brokerage statements are not correct but most people don't realize this, including some CPAs.
-So the solution is put them in an IRA to avoid the tax filing hassles. Well very few of my clients do this for some reason. I'm stuck with 5 new K-1's to report on their tax return, then they complain when our fees go up 10%.
-I know some investment advisors that push these on clients, which typically means high expenses and more fees for the advisors.

I realize that was a bit complainypants, but it's how I feel and I don't see the benefits.

So can someone convince me otherwise? What are the benefits that I don't see? Who's in the Like 'em, camp and why?

Cpa Cat

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #1 on: June 12, 2014, 11:13:11 AM »
Hate em. I think people usually pay more in accounting/management fees than they make from the investment, which, like you, I see, because I do taxes.

I am one of the few people here with an investment advisor, and I told him I would straight up fire him if he ever puts a PTP in my portfolio. Even though I know how to do all my own accounting, I would attach those K-1's to a bag of dog poop, light it on fire and leave it on his doorstep.

Cheddar Stacker

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #2 on: June 12, 2014, 12:16:52 PM »
Lol. Wow. Looks like I stuck a nerve. You feel my pain obviously.

BTW - I have an investment advisor also, but he's only managing old investments and I might be moving them within a year or two into some real estate rentals or my own portfolio at Vanguard. All new investments are managed by me now that I've been properly educated by this group.

rmendpara

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #3 on: June 12, 2014, 12:49:49 PM »
I think they can be worth it if the earnings outweigh the extra reporting requirements (likely only the case for HNW individuals).

I used to own 3 that I bought into in 2012, but sold them all earlier this year after doing my 2013 taxes and realizing how annoying they were.

I am a CPA and I don't even want to do them for myself. I can't imagine doing them for other people.

For my 2015 taxes, I'm excited to just import the data from Vanguard into Turbotax, and call it a day.

I think people are drawn to them because of the high current income and tax deferral of distributions, but I see a better play in Big Oil over the next 20 years than in the PTP space.

Cheddar Stacker

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #4 on: June 12, 2014, 12:55:57 PM »
So, that sounds like another hater to me. 3 cpas, 3 hate votes. I'm seeing a trend.

Any non-cpa's out there with good or bad experiences on PTPs?

.. but I see a better play in Big Oil over the next 20 years than in the PTP space.

Care to enlighten the masses here, or are you keeping this gem to yourself?

hodedofome

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #5 on: June 12, 2014, 01:40:54 PM »
I used to own some, most of my family is in the oil business and grandpa was investing in MLPs from the get-go. I used taxact.com for my taxes and they were able to handle the K-1 and I just answered the questions. It was more of a pain than a normal stock but it wasn't horrible.

The nice thing about it is that you can't really mess it up. Nobody at the IRS knows anything about them and you'll get a different answer from everyone there that you speak to. Therefore, I don't see how they could audit you. All you have to say is that you called the hotline and spoke to ______(make up a name) and they told you to do what you did. Done. :)

In any case, if you can find a broker that knows how to handle them, it's just better off if you own them in an IRA.

A few tickers (like KMR) just issue stock instead of distributions, so there's nothing to report until you sell. It'll just give you a lower cost basis.

ivyhedge

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #6 on: June 12, 2014, 02:26:17 PM »
Love them. Made a tremendous amount of money with a number of them - but only after I learned a lot about their financials, operations, and many minutiae in which most folks have *no* interest. Aside from the CPAs/MSFs here, most potential investors don't even know how to evaluate MLPs and similarly structured entities for further study: akin to folks "valuing" REITs using p/e comparables...


Most don't belong in IRAs (though few can tell you why: UBTI, mostly, unless one holds only a pittance).


My wife is a CPA and, since taking over our taxes several years ago, has repeatedly said that she doesn't understand why folks complain so much about K-1s. Maybe her thoughts would have been different if we hadn't bought our shares before it was "trendy". But she also has an uncanny ability to make the most complex math problems into something a 2yr old can understand: so there's that.

hodedofome

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #7 on: June 12, 2014, 03:47:49 PM »
Most don't belong in IRAs (though few can tell you why: UBTI, mostly, unless one holds only a pittance).

Agreed but you can count on one hand the number of people in America that know about this. That includes brokers and the IRS. Grandpa hodedofome has been holding bookoos of MLPs in his IRA for years without a hitch.

jpdcpajd

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #8 on: June 12, 2014, 07:29:11 PM »
Most don't belong in IRAs (though few can tell you why: UBTI, mostly, unless one holds only a pittance).

Agreed but you can count on one hand the number of people in America that know about this. That includes brokers and the IRS. Grandpa hodedofome has been holding bookoos of MLPs in his IRA for years without a hitch.

Yeah I have had brokers say my clients had no tax issues investing in these.  well when it is several hundred thousand dollars invested it gets over the $1,000 threshold pretty quick.  Then the IRA custodian is responsible for filing the forms.

They do have one large benefit of making large distributions regularly.  I actually spent a few seasons at the PwC MLP office in Dallas where they process about 95% of the MLP returns. These things were going IPO like crazy.
They don't worry too much about substantial economic effect or state tax adjustments like bonus depreciation.  They allocate on a monthly basis so if you buy and sell in the same month you get no allocation of income.
There are some etfs and mutual funds that hold these and act like a blocker corp to avoid reporting issues and UBTI

ivyhedge

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #9 on: June 20, 2014, 12:42:07 PM »
Most don't belong in IRAs (though few can tell you why: UBTI, mostly, unless one holds only a pittance).

Agreed but you can count on one hand the number of people in America that know about this. That includes brokers and the IRS. Grandpa hodedofome has been holding bookoos of MLPs in his IRA for years without a hitch.

Yeah I have had brokers say my clients had no tax issues investing in these.  well when it is several hundred thousand dollars invested it gets over the $1,000 threshold pretty quick.  Then the IRA custodian is responsible for filing the forms.

They do have one large benefit of making large distributions regularly.  I actually spent a few seasons at the PwC MLP office in Dallas where they process about 95% of the MLP returns. These things were going IPO like crazy.
They don't worry too much about substantial economic effect or state tax adjustments like bonus depreciation.  They allocate on a monthly basis so if you buy and sell in the same month you get no allocation of income.
There are some etfs and mutual funds that hold these and act like a blocker corp to avoid reporting issues and UBTI


@JP: Thanks for sharing your experience (pwc ftw). Yes, UBTI does grow quickly for some investors. The problem is that too many folks pay the concern short shrift until ... If buying an index to avoid filing a K-1, stick to the ETNs, as the tax handling (c) of the various ETFs cleaves performance.

Trirod

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Re: Publically Traded Partnerships - Like 'em or hate 'em?
« Reply #10 on: June 30, 2014, 02:25:55 PM »
Add another CPA who hates MLP's to your list.

I tell my clients that if they want to invest, they should be doing at least $10,000 per entity to make sure the tax advantages outweigh the additional compliance costs.  And don't buy and sell too often - that's where the complexity arises (adjustments to basis and ordinary income recapture).

Of course it's even worse if they invest in Oil and Gas interests directly - that really starts to run up the tab!  Funny how their financial advisor never mentions that to them...