Are you referring to the MLP Parity Act introduced last year.
If so, you might be interested in knowing it's design was to liberalize and expand MLPs , not crash them down.
If you bothered to read the information supporting the bill it was very heavily focused on the MLP structure as a benefit to energy exploration, development and, ultimately...energy independence.
It never made it through Congress, but it wasn't for want of additional tax revenues. It failed because it favored renewable forms of energy, and we all know how some special interests feel about that.
Your quote.... "You pay on a "return of capital" as you go along, until the company has returned all of your "capital." Then you don't have to pay any more, and won't have any gains until you sell at the end.. "
I believe you've got the taxation of ROC wrong (actually backwards)and this mistake defeats your whole thesis. You should really check it out. Try the National Assoc of Publicly Traded Partnerships (NAPTP) web-site at (http://naptp.org). It can lead you in the right direction
Linn Vs. LinnCo: Is It All About Taxes? [View article]
Hi Paul,
You raise a mouth-full and I'll do my best to answer.
First, a distribution by any corp (not just MLP hy-brids) in excess of current and accumulated earnings is tax free return of basis. After basis is reduced to zero, it is cap gains. This treatment is not unique to this particular structure. If up to 50% represents tax free return then it tips the scale even more towards LNCO v. LINE.
Assuming a 7% distribution rate, of which 1/2 is ROC, it would take 30 years before basis reaches zero.I don't think this is anything to worry about.
Second: I don't believe there is any rationale or code provision that would classify return of capital as an IRA contribution or is any likely to be instituted. If this was possible, the sale of any IRA asset (which is a return of capital) would fall into this
Third: UBTI is imposed upon the tax-exempt entity (IRA) engaging in an unrelated business (as a partner). Shares of LNCO do not represent a partnership interest and therefore, no UBTI should ever be impose on the IRA. Furthermore, LNCO is not tax-exempt so it's ownership interest in LINE is also not subject to UBTI, but, rather corporate taxes.
LINE will make distributions to LNCO, some of which will be currently taxed and some (the majority) will be tax free RTC. Over time, as LINE makes taxable distributions to LNCO, LNCO will have to absorb the tax and it will suppress the returns. However, when a LNCO shareholder disposes of shares, they will have no "recapture" at ordinary rates, as they would if they sold LINE units.
However if LNCO sells shares in LINE, then LNCO will have "recapture". I have trouble seeing how LNCO would find itself in this predicament unless it engaged in a stock buy-back, as once it floats the offering, the secondary market trades the shares.
Your comment ...."In other words, (a) LINE sells a fresh lot of shares to LNCO, and (b) LNCO pays for this new lot with its then current shares. It's like a swap, except that all shares are sold and paid for. Bankers might not like it because there are no banking fees involved. Lawyers should love it." ....makes no sense to me.
LNCO really doesn't have any reason to do this, unless it was preliminary to a secondary offering. Otherwise it probably runs counter to their charter. After all, they are supposed to keep a one-to-one ratio between their float and LINE shares. A "swap" without a secondary offering would be violative. The purpose of a secondary offering would be to raise cash for LINE's uses, and it seems they would buy the LNCO shares back from LINE to get the cash where it's intended.
Keep in mind, all this depends upon LNCO being taxed as a corporation and not an MLP. As with many other things in life, this is not guaranteed.
I always love it when a theorist chimes in. Once there was a theory that the world was flat.
When facts contradict theory, it's time to revise theory, not facts. Scientific analysis dictates that theory is evolved from observation, not the other way around.
Most pricing models for options (such as Black-Scholes) have come under attack because they don't reflect factors that, in reality, effect markets.
If you want to ignore nearly 25 years of historical data indicating your theory is not relevant, than that's your option and I wish you good luck.
I thought it best to add some data points. There is insufficient data to go to 1987, so lets look at the most recent "crash" from 2007 through 2012 data.
In July 2007 SPTR was at all time high and dropped 49% by March 2009. Since then it has risen 101%, but remains about 1% below its highest level.
The PUT, dropped only 32% from July 2007 to March 2009. As I mentioned, it outperforms in a down market, in this case suffering only 2/3rds the loss.
The PUT has risen 74% since March 2009, which is only 75% of the rise of the SPTR, once again, confirming that it underperforms in rapidly rising markets.
However, the PUT is 20% above its July 2007 levels (compared to SPTR's 1% loss), because its outperformance during the drop more than made up for its underperformance since, and currently sits at an all-time high.
Good Dividend Payer BreitBurn Energy Partners Brightens Its Future With New Oil Asset Purchases [View article]
Hi LeeLee9940,
The IRS code provides that if you gift an MLP(or any property with 1249,1250 recapture exposure) to charity you only get a tax deduction equal to the FMV LESS any recapture amounts.
So, in effect your loss of that deduction is effectively the same as if you had to include it in income and then given the equivalent cash to charity.
In short, there is no way around the recapture, except by passing the recapture liability to your heirs on death.
Here's the direct language from IRS web-site:
"Gift to charitable organization. If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation.
You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. For more information, see Giving Property That Has Increased in Value in Publication 526. "
You initially assumed that someone can just successfully roll over a bond over 400 years without loss. And you had the mis-fortune to suggest a "TAX FREE GOV"T BOND", as if they existed 400 years ago (actually, I think land and labor were taxed, not interest, so by default, you may have hit on something )
There is risk to any investment and to make as comparative example as you initially did is the stuff fools are made of. I appreciate that you now acknowledge the risk associated with it.
I am not a gold-bug but at least I can appreciate that there are only a few investments that have survived 400 years and they are primarily precious metals, artifacts and land. Those "paper documents" that have survived are valued mostly for their rarity and antiquity, not their face value.
South Carolina's pension fund's push into alternative investments has done little for its returns, but has paid off well for for hedge and PE funds (not to mention its now-former investment chief). Desperate to make up shortfalls, state and local pension funds nationwide are doing the same, and Wall Street is happy to oblige. [View news story]
The national budget must be balanced. The public debt must be reduced; the arrogance of the authorities must be moderated and controlled. Payments to foreign governments must be reduced, if the nation doesn't want to go bankrupt. People must again learn to work, instead of living on public assistance.”
This statement was made by Cicero in 55 B.C.
We'll be hearing this story as long as we live, best just to ignore it and make your investing plans as usual.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
Hi Ray,
Agree with almost everything you say.
Disagree that you can pin this on the executive branch. It lies squarely on Congress, as well.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
Hi Paulo,
If there are no quantifiable, fixed linkages then how does ...
"... these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?"
Seems to me he is linking and fixing the policies with unemployment and printing money to devaluing the currency.
He goes much further than you suggest. He clearly states that even if something repeated its results 10 time, it is not a constant.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
I've read his speech, carefully.
He is specific in stressing that there are no constants in economics, no predictability, as in the physical sciences.
He then goes on to use constants to predict the effects of policy in reaching his conclusions.
Feb. Nonfarm Payrolls:+227K vs. consensus of +215K, +284K (revised from 243K) in Jan. Unemployment 8.3% vs 8.3% expected. Average workweek unchanged at 34.5 hours, inline. Average hourly earnings +0.1%. [View news story]
As a lagging indicator it tells us that things weren't as bad as some dissident politicos wanted us to believe.
As a trend line it tells us that things are getting better.
"The only thing that matters is the price of gas in California and New York," writes Bruce Krasting, and it's blowing out thanks to dependence on Louisiana crude (which tracks the world benchmark). Forget $4, $5 gas may be coming in states that have the majority of cars (and GDP). [View news story]
Hi Tiger and Jason,
Did either of you actually take the time to read Krasting's article?
I did and it seems to me that his point is that instead of using a "National Average" gas price, that the price in NY and California is more likely going to reflect the overall economic impact.
By inference, he is suggesting that it is the price per gallon multiplied by the number of gallons bought at that price (on a state by state basis) that is the real indicator. Not simply an average of the prices.
The Coming MLP Meltdown [View article]
Are you referring to the MLP Parity Act introduced last year.
If so, you might be interested in knowing it's design was to liberalize and expand MLPs , not crash them down.
If you bothered to read the information supporting the bill it was very heavily focused on the MLP structure as a benefit to energy exploration, development and, ultimately...energy independence.
It never made it through Congress, but it wasn't for want of additional tax revenues. It failed because it favored renewable forms of energy, and we all know how some special interests feel about that.
The Coming MLP Meltdown [View article]
I would appreciate it if you would cite, specifically, these "bills written so far."
Hello Taxes... Goodbye MLPs [View article]
Your quote.... "You pay on a "return of capital" as you go along, until the company has returned all of your "capital." Then you don't have to pay any more, and won't have any gains until you sell at the end.. "
I believe you've got the taxation of ROC wrong (actually backwards)and this mistake defeats your whole thesis. You should really check it out. Try the National Assoc of Publicly Traded Partnerships (NAPTP) web-site at (http://naptp.org). It can lead you in the right direction
Linn Vs. LinnCo: Is It All About Taxes? [View article]
You raise a mouth-full and I'll do my best to answer.
First, a distribution by any corp (not just MLP hy-brids) in excess of current and accumulated earnings is tax free return of basis. After basis is reduced to zero, it is cap gains. This treatment is not unique to this particular structure. If up to 50% represents tax free return then it tips the scale even more towards LNCO v. LINE.
Assuming a 7% distribution rate, of which 1/2 is ROC, it would take 30 years before basis reaches zero.I don't think this is anything to worry about.
Second: I don't believe there is any rationale or code provision that would classify return of capital as an IRA contribution or is any likely to be instituted. If this was possible, the sale of any IRA asset (which is a return of capital) would fall into this
Third: UBTI is imposed upon the tax-exempt entity (IRA) engaging in an unrelated business (as a partner). Shares of LNCO do not represent a partnership interest and therefore, no UBTI should ever be impose on the IRA. Furthermore, LNCO is not tax-exempt so it's ownership interest in LINE is also not subject to UBTI, but, rather corporate taxes.
LINE will make distributions to LNCO, some of which will be currently taxed and some (the majority) will be tax free RTC. Over time, as LINE makes taxable distributions to LNCO, LNCO will have to absorb the tax and it will suppress the returns. However, when a LNCO shareholder disposes of shares, they will have no "recapture" at ordinary rates, as they would if they sold LINE units.
However if LNCO sells shares in LINE, then LNCO will have "recapture". I have trouble seeing how LNCO would find itself in this predicament unless it engaged in a stock buy-back, as once it floats the offering, the secondary market trades the shares.
Your comment ...."In other words, (a) LINE sells a fresh lot of shares to LNCO, and (b) LNCO pays for this new lot with its then current shares. It's like a swap, except that all shares are sold and paid for. Bankers might not like it because there are no banking fees involved. Lawyers should love it." ....makes no sense to me.
LNCO really doesn't have any reason to do this, unless it was preliminary to a secondary offering. Otherwise it probably runs counter to their charter. After all, they are supposed to keep a one-to-one ratio between their float and LINE shares. A "swap" without a secondary offering would be violative. The purpose of a secondary offering would be to raise cash for LINE's uses, and it seems they would buy the LNCO shares back from LINE to get the cash where it's intended.
Keep in mind, all this depends upon LNCO being taxed as a corporation and not an MLP. As with many other things in life, this is not guaranteed.
Linn Vs. LinnCo: Is It All About Taxes? [View article]
Thanks for bringing real-world info.
Your action confirms what I believe is the trend and my reasoning that the future will see more proportionate investment in LNCO than LINE.
Selling Puts - Investing Made Easy [View article]
Thanks for reading and commenting.
I always love it when a theorist chimes in. Once there was a theory that the world was flat.
When facts contradict theory, it's time to revise theory, not facts. Scientific analysis dictates that theory is evolved from observation, not the other way around.
Most pricing models for options (such as Black-Scholes) have come under attack because they don't reflect factors that, in reality, effect markets.
If you want to ignore nearly 25 years of historical data indicating your theory is not relevant, than that's your option and I wish you good luck.
Selling Puts - Investing Made Easy [View article]
I thought it best to add some data points. There is insufficient data to go to 1987, so lets look at the most recent "crash" from 2007 through 2012 data.
In July 2007 SPTR was at all time high and dropped 49% by March 2009. Since then it has risen 101%, but remains about 1% below its highest level.
The PUT, dropped only 32% from July 2007 to March 2009. As I mentioned, it outperforms in a down market, in this case suffering only 2/3rds the loss.
The PUT has risen 74% since March 2009, which is only 75% of the rise of the SPTR, once again, confirming that it underperforms in rapidly rising markets.
However, the PUT is 20% above its July 2007 levels (compared to SPTR's 1% loss), because its outperformance during the drop more than made up for its underperformance since, and currently sits at an all-time high.
Good Dividend Payer BreitBurn Energy Partners Brightens Its Future With New Oil Asset Purchases [View article]
The IRS code provides that if you gift an MLP(or any property with 1249,1250 recapture exposure) to charity you only get a tax deduction equal to the FMV LESS any recapture amounts.
So, in effect your loss of that deduction is effectively the same as if you had to include it in income and then given the equivalent cash to charity.
In short, there is no way around the recapture, except by passing the recapture liability to your heirs on death.
Here's the direct language from IRS web-site:
"Gift to charitable organization. If you give property to a charitable organization, you figure your deduction for your charitable contribution by reducing the fair market value of the property by the ordinary income and short-term capital gain that would have resulted had you sold the property at its fair market value at the time of the contribution. Thus, your deduction for depreciable real or personal property given to a charitable organization does not include the potential ordinary gain from depreciation.
You also may have to reduce the fair market value of the contributed property by the long-term capital gain (including any section 1231 gain) that would have resulted had the property been sold. For more information, see Giving Property That Has Increased in Value in Publication 526. "
End Of An Era For Gold Investors [View article]
There is risk to any investment and to make as comparative example as you initially did is the stuff fools are made of. I appreciate that you now acknowledge the risk associated with it.
I am not a gold-bug but at least I can appreciate that there are only a few investments that have survived 400 years and they are primarily precious metals, artifacts and land. Those "paper documents" that have survived are valued mostly for their rarity and antiquity, not their face value.
South Carolina's pension fund's push into alternative investments has done little for its returns, but has paid off well for for hedge and PE funds (not to mention its now-former investment chief). Desperate to make up shortfalls, state and local pension funds nationwide are doing the same, and Wall Street is happy to oblige. [View news story]
This statement was made by Cicero in 55 B.C.
We'll be hearing this story as long as we live, best just to ignore it and make your investing plans as usual.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
Agree with almost everything you say.
Disagree that you can pin this on the executive branch. It lies squarely on Congress, as well.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
If there are no quantifiable, fixed linkages then how does ...
"... these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?"
Seems to me he is linking and fixing the policies with unemployment and printing money to devaluing the currency.
He goes much further than you suggest. He clearly states that even if something repeated its results 10 time, it is not a constant.
Bob Wenzel holds no punches in a speech this week to the NY Fed: "The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out." [View news story]
He is specific in stressing that there are no constants in economics, no predictability, as in the physical sciences.
He then goes on to use constants to predict the effects of policy in reaching his conclusions.
Hasn't anyone noticed this?
Feb. Nonfarm Payrolls: +227K vs. consensus of +215K, +284K (revised from 243K) in Jan. Unemployment 8.3% vs 8.3% expected. Average workweek unchanged at 34.5 hours, inline. Average hourly earnings +0.1%. [View news story]
As a trend line it tells us that things are getting better.
"The only thing that matters is the price of gas in California and New York," writes Bruce Krasting, and it's blowing out thanks to dependence on Louisiana crude (which tracks the world benchmark). Forget $4, $5 gas may be coming in states that have the majority of cars (and GDP). [View news story]
Did either of you actually take the time to read Krasting's article?
I did and it seems to me that his point is that instead of using a "National Average" gas price, that the price in NY and California is more likely going to reflect the overall economic impact.
By inference, he is suggesting that it is the price per gallon multiplied by the number of gallons bought at that price (on a state by state basis) that is the real indicator. Not simply an average of the prices.
Makes a lot of sense to me.