Tax Tips by Kelly Bullis: MLPs – learn intricacies or, even better, stay away
For the Nevada Appeal
Earl Pitts likes to say, “You know what makes me sick?” Well, I want to let you know about something that makes me sick. Something that makes me angry. It’s enough to make me look like an orangutan scrunching his face up after sucking on a lemon.
It’s the peak of tax season and our CPA firm has wasted way too many hours on many of our client’s tax returns, trying to properly handle all the petty intricacies of Schedule K-1s from Master Limited Partnerships (MLP). All too often, they are listing losses that are limited or even disallowed by the IRS.
If a person buys some stock listed on the New York Stock Exchange, they have made a simple purchase that has a large market of buyers and sellers to establish a fair price. They usually have purchased a piece of ownership in a fairly solid company. They can vote for the directors and officers. The reporting issues on their tax return are normally fairly simple.
If a person buys a Limited Partner share in a Master Limited Partnership, there is no large established market for buying and selling, (unless you buy into a “fund” comprising MLPs that is traded on the NYSE). MLP owners have no say in the governance of that company. Even worse, they may have purchased a red flag waving at the IRS that says, “Audit me!” FYI: most MLPs are in the oil and gas infrastructure industries.
Who usually gets talked into buying Master Limited Partnerships? All too often, vulnerable elderly folks. (This is a large part of what makes me angry.) Another group of vulnerable buyers are folks who are getting desperate about catching up with their savings for retirement. Perhaps it would be easier to spot this bad investment if a “shady character” in a trench coat was hanging out in the shadows of an alleyway, and said, “Psst! Hey buddy! Wanna buy an investment that will make you a lot of money?”
I know, there are a few “experts” who think these Master Limited Partnerships are great. Most stockbrokers I know do not like them either. So please, don’t get mad at me. Before you buy, I strongly suggest that you check out the track records of these MLP investment options. Rarely do they come anywhere close to their projections. Sometimes it seems that the persons who stand to make the most money are the general partners, the salesperson who sold it, and the CPA who prepares the MLP’s tax return.
So what is the take from all of this? If you are looking for somewhere to invest your savings or your retirement funds, I suggest that you stay away from investing in Master Limited Partnerships unless you could call yourself an expert in them. A simple rule to follow when making investment decisions: “If it sounds too good to be true, it probably is.”
• Kelly Bullis is a Certified Public Accountant with over 30 years of experience. Contact him at 882-4459.