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rock_rent saysRe: Tax Treatment for Indirectly Owned MLPs (ETE, ETP, RGP) - Help Hi Fugitive Pauper: I agree that the accounting for these subsidiary activities is rather murky and can be very complex to implement. Part of the difficulty here is that the basis and at-risk limitations apply on an entity-by-entity basis, while the passive activity loss (PAL) limitations apply on an activity-by-activity basis - so the different kinds of filters for your losses don't actually work on the same thing. What this means is that you have a single basis and amount at risk for your ETE K-1 (including the parts of ETP and RGP included in it), which determines whether you have distributions in excess of basis from this K-1 and whether you have sufficient basis and amount at risk to take any losses that are reported. But once you pass these two hurdles, the losses then go through the PAL filter on an activity-by-activity basis. For most people early in their investing career, this is still relatively straightforward - they clearly still have enough basis and amount at risk (i.e., positive capital account), so it just becomes a matter of keeping the ETE/ETP/RGP or PAA/PNG (or, in my case, the NRGY/NRGM) activities separate. But if you've had ETE for a while and are running out of basis, the rules are very unclear about how the suspension of losses would be allocated among the activities (one approach, I guess, would be to allocate pro-rata among the losses for the various activities for that year). I am not familiar with TurboTax, and thus have no idea how you could do that there; I do know that in my professional tax software there is no way to do this, so that this kind of allocation of losses suspended due to lack of basis would have to be tracked on a separate spreadsheet outside the tax software. Fortunately, I have not yet come across a situation where I would have actually had to do this. The other issue you raise is the combining of activities - for example, the ETP you own through ETE and the ETP you own outright. Under the general passive activity loss rules of Internal Revenue Code Sec. 469, you are allowed (but not required) to do this kind of grouping - but once you do so, it becomes a single "activity" (that is, for purposes of the PAL rules, you now have a single ETP activity, even though it is reported through several different K-1s). What this means is that, if you combine your activities in this manner, the PALs are released only when you dispose of the entire activity (i.e., sell both ETE and ETP); disposing of only ETE in this case would not release the losses associated with the portion of ETP you own through ETE. It is possible that it might be to your advantage to combine the activities (for example, if the ETP you own outright is throwing off income while the ETE-ETP is still generating losses); however, this would seriously complicate tracking losses and basis from year to year. Thus, I prefer to keep activities from different K-1s separate (i.e., I would treat the outright ETP as a separate activity from the ETE-ETP and from the EPD-ETP). As to how many people are actually paying attention to this, that is difficult to say. At least this year, from what I have seen so far, the amounts involved in PNG through PAA and NRGM through NRGY are relatively small, so one might feel the same way as one feels about filing all the technically required state returns. But as alvinsch00 has pointed out, it can in fact make a difference, and thus it appears that those interested in technically correct returns should in fact track these separate activities. --rock_n_rent |
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