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The Chestnut

 
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  • What Happens When You Sell An MLP? [View article]
    Thanks for the excellent point, Bikerguy, and for putting this in context.
    May 1 01:30 PM | Likes Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Hey WmHilger1! Apologies for the delay. Partly because MLPs do not fit into my current investment strategy and partly for other reasons, I don't invest in them. Your question is an excellent one, and perhaps someone can chime in with real-world experience.
    May 1 01:28 PM | Likes Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Reel Ken is fantastic. I completely agree.
    Apr 30 07:56 PM | 3 Likes Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Agreed!
    Apr 30 07:50 PM | 1 Like Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Thanks monguuse! And thanks for the real-world examples!
    Apr 30 07:36 PM | 1 Like Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Thanks Mozman! That is a great question...and one that seems more suited for a tax attorney. (I'm a lowly law student at the moment). Any answer would likely be fact-specific (i.e. how the buy-out is structured, whether the MLP liquidates first, etc.).
    Apr 30 07:30 PM | 3 Likes Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Hey bufmealow! Like nearly every question involving partnership tax, the tax consequences are incredibly complicated. The basic answer seems to be yes, your charitable contribution suffers somewhat when the MLP owns ordinary-income producing assets. Other complications arise when the partnership has liabilities. Take a look at this IRS publication (http://1.usa.gov/14R9RwT), which gives a brief overview:

    "When a partner contributes an interest in a partnership that has liabilities to a charitable organization, the transaction is bifurcated into a charitable contribution and a sale. The amount of the charitable contribution is equal to the amount by which of the fair market value of the partner’s share of partnership assets exceeds the partner’s relief of debt under IRC section 752(b). In other words, the charitable contribution amount equals the partner’s net equity value in the partnership."

    "For the sale portion of the transaction, the amount of the debt relief is considered to be the amount realized per IRC section 752(d). IRC section 1011(b) requires the donor’s basis to be prorated between the portion deemed contributed and the portion deemed sold based on the fair market value of each. The basis that the donor is able to use in calculating his/her gain must bear the same ratio to the total basis that the sales price bears to the total fair market value of the partnership interest. In some instances, the “sales price” will simply equal the amount of the donor-partner’s relief of debt. If this is the case, then the basis of the portion sold will equal the donor’s total adjusted basis multiplied by a fraction in which the numerator is the relief of the liabilities and the denominator is the fair market value of the partnership interest."

    "The presence of IRC section 751 assets impacts the deductible amount of the charitable contribution. To the extent a sale or exchange of the charitable contribution portion would have generated ordinary income, the amount of the deduction would be reduced under Treas. Reg. section 1.170A-4(c)(3)."

    "In order to determine the allowable charitable deduction for the contribution of property, including a partnership interest, it must be determined whether and to what extent the property would, if sold, give rise to ordinary income or capital gain. Under IRC section 170(e)(1), a charitable contribution of property is reduced by the amount of gain which would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). Thus, to the extent a sale of a partnership interest by the donor would have resulted in ordinary income due to the presence within the partnership of IRC section 751 “hot assets”, the amount of the charitable contribution is reduced."

    I hope this helps!
    Apr 30 07:13 PM | Likes Like |Link to Comment
  • What Happens When You Sell An MLP? [View article]
    Thanks! All great points.
    Apr 30 04:23 PM | 1 Like Like |Link to Comment
  • Bonds Are Cheap, Gold Not So [View article]
    Thanks for the article! While I agree with your macro-analysis of the economy, I am not sure I would call bonds cheap. Sure, bond yields might fall further and bond prices might increase. But how much farther can bond yields fall? The short term rate is already near the zero bound. Also, the yield curve has actually flattened in the last few years, per Bloomberg (see http://bloom.bg/eMLJq8), suggesting that the market is pricing in a long period of low interest rates. Given this, investors need to venture far out onto the yield curve to generate a yield that produces any significant income. But is the added interest rate risk incurred by venturing so far out onto the yield curve worthwhile, given the additional yield? I doubt it.
    Apr 11 03:54 AM | 1 Like Like |Link to Comment
  • Is A Correction Beginning? Stock Index Futures Analysis Shows Speculators Fear No Evil [View article]
    Thanks for the article!! I think one of the strongest cases for a continued rise in U.S. equities is that there's hardly anywhere else for investors across the globe to put their money. Treasury yields are measly, Europe is a mess, money markets yield next to nothing. While I don't believe anyone thinks the U.S. stock market is a risk-off safe haven, I do think many investors see it as the best place to earn a decent yield. With that said, those who trade actively might want to consider securing some of the gains at this point. A correction certainly will come at some point. The question's not if, but rather how severe, and when.
    Apr 4 08:28 PM | 5 Likes Like |Link to Comment
  • How To Assess Real-World Portfolio Diversification [View article]
    Thanks for the article. It's well-researched, informative, and interesting. Two thoughts struck me. First, you equate portfolio risk with volatility, but not all volatility is "risky." It's really volatility to the downside that you want to avoid. Might an excessive focus on low-volatility portfolio constructions rob the portfolio of gains--specifically, volatility to the upside? Second, I worry about over-exposure to certain sectors/countries and fees. While ETFs and other funds are more and more prevalent these days, many of the cheapest funds move in sync; they have correlation coefficients close to 1, and so offer little diversification. But, as you show, it's possible to increase diversification by investing in narrower funds (for example, by investing in single-country funds or by investing in single-sector funds). But with this comes two dangers: the danger of being overly exposed to a single sector or country, and the danger of wracking up high fees. Many of these narrow funds have much higher fees than their cheaper, broader counterparts. This is a dilemma, for those searching for a cheap way to diversify.

    In any case, these are just a few musings. Overall, I enjoyed your article. Thanks.
    Apr 1 08:18 PM | Likes Like |Link to Comment
  • It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
    Thanks for the research, Ellen. To me, the most interesting question would be whether this would be either a regulatory taking under the 14th Amendment or a taking under the 5th amendment. Technically, the depositors pass over legal title and become creditors upon deposit, and the deposits become the bank's property. But could the bank sue, claiming that its own property was being taken without just compensation (particularly if the deposits were being used to fund other bank bailouts as well)? There was a not-so-analogous case, Brown v. Legal Foundation of Washington (http://bit.ly/X2b8fb), in which the Supreme Court held that a state program which "took" the interest from certain trust accounts, and used it to pay for legal services to the needy, didn't amount to taking within the meaning of the 5th amendment. But the Cyprus hypothetical is different. In Brown, the funds deposited in the trust accounts couldn't otherwise generate net earnings and so the account holders effectively lost nothing. That's not necessarily true, with the Cyprus hypothetical and the banks. In any event, excuse any errors and/or anything I overlooked. These are merely my off the cuff musings on an interesting legal issue.
    Mar 29 04:33 PM | Likes Like |Link to Comment
  • Passive Investors: Stop Worrying About Bonds! [View article]
    Thanks Gardener!
    Mar 27 08:12 AM | Likes Like |Link to Comment
  • Passive Investors: Stop Worrying About Bonds! [View article]
    Thanks Chemist, and great points! A bond ladder is certainly another way to minimize interest rate risk.
    Mar 27 08:11 AM | Likes Like |Link to Comment
  • Understanding Interest Rate Risk And Duration Of A Bond [View article]
    Thanks for the informative article, Robert. You hint at this in the comments, but what often puzzles me is why investors assume that "risk free" entails being risk free in all respects. At least with bonds, there are different types of risk. While T-Bonds might be relatively "risk free" with respect to credit risk, they are certainly not risk free with respect to interest rate risk--particularly as durations lengthen.

    I've also noticed that, as the financial media's crying out over a bond bubble--which seems entirely plausible--the media often overlooks the fact that, if and when interest rates rise precipitously, this may trigger both a stock market crash and a crash in bond prices. Nerd's Eye View summarized this well in one post (http://bit.ly/ZsZE4g). Partly for that reason, rotating out of bonds and into stocks to avoid losing money when the bond bubble bursts seems like a questionable strategy.
    Mar 26 07:46 PM | Likes Like |Link to Comment
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