PTP K1 I want client to dump this

[BHoffman]

I have a PTP K-1 here (ICAHN).  The client's investment advisor put him into this.  He invested a whopping $4700 and the K-1 is full of tiny numbers, like ordinary income $-7.  

I want to ask my client to tell his investment guy to get him out of this PTP.   Am I out of line?

 

 

 

[Abby Normal]

No, you're not out of line, but tell the client what I tell mine. Each PTP K1 will add $75 to the bill and any sales, partial or complete will add $150 to the bill. I have clients with 9 or 10 of these damn things. Fortunately, ATX does a very good job with them. Also, except for income and deduction items, we don't enter any amounts under $10. And you can skip a lot of boxes anyway like DPAD (box 13T), AMT, and box 20. Is getting them a $2 foreign tax credit worth even a minute of your time?

[Margaret CPA in OH]

I've had a few of this sort of things over the years including one this morning.  I just point out, from a tax perspective, what I see and advise them to have a good talk with the investment advisor to be sure they understand what, exactly, that investment is and why the advisor thinks it's a good one.  One client a few years ago had an advisor that I am convinced was churning the account with scores of short term transactions.  After the third year of pointing this out and showing that she had over $35,000 in losses without the likelihood of using them, I again suggested she have a chat with the advisor.  The advisor left me a nasty voice mail message but the client moved her accounts and was much better off.

[Randall]

They are a pain.  Last year, a client had $29,000 reported to him as cancellation of debt income.  He was in the top tax bracket.  A few days after I got his info, I saw an article in WSJ that this PTP had a major reorganization and had billions in restructured debt.  My client's share was 29k.  Cost him $14k in tax (Fed & State).  He got out of it after that.

 

[Gail in Virginia]

20 minutes ago, Randall said:

 He got out of it after that.

 

Nothing like locking the door after the horse has been stolen. 

Also need to watch that these K-1s are not in their IRA account.  I get two or three a year, with minuscule amounts, but they are in the IRA account so we just ignore them.  If they had larger amounts, they could result in UBIT. 

 

[FDNY]

I have a client who in 2015 moved his brokerage account to another and all of a sudden he's got a boatload of these things.  Evidently they are a big cash cow for the advisor.  I gave my client the best advice I could think of, tell the advisor you don't want anymore PTPs.  

I also sent client an article explaining all the disadvantages of owning and selling PTPs.

[Randall]

34 minutes ago, Gail in Virginia said:

Nothing like locking the door after the horse has been stolen. 

Yes and he can't blame his advisor because he is a DIY investor.

[michaelmars]

brokers get huge commissions on these, and Merril Lynch brokers seem to love them.  I too charge per k-1 for these.

[taxxcpa]

18 hours ago, Gail in Virginia said:

Also need to watch that these K-1s are not in their IRA account.  I get two or three a year, with minuscule amounts, but they are in the IRA account so we just ignore them.  If they had larger amounts, they could result in UBIT. 

 

Unless you have a large amount in them, the best place for them is in your IRA.  UBIT is unlikely.

[Roberts]

1 hour ago, michaelmars said:

brokers get huge commissions on these, and Merril Lynch brokers seem to love them.  I too charge per k-1 for these.

How did you determine the brokers are making huge commissions versus alternative investments?

[Catherine]

2 minutes ago, Roberts said:

How did you determine the brokers are making huge commissions versus alternative investments?

From extrapolation - when I see them showing up in elderly clients' accounts (where they do NOT belong), along with gazillions of losing stock trades.  Clear indication of churning and commission-harvesting activities.

[BHoffman]

Talked to the client.  He doesn't understand this PTP thing and thinks he bought ICAHN stock and will receive dividend checks.  I explained that's not how PTP's work.  He's going to talk to the broker.

[Roberts]

5 hours ago, Catherine said:

From extrapolation - when I see them showing up in elderly clients' accounts (where they do NOT belong), along with gazillions of losing stock trades.  Clear indication of churning and commission-harvesting activities.

I didn't quote you. The point he claimed was that the brokers are making huge commissions on THESE particular investments. Since they (by volume) mosty trade on an exchange, I'm wondering how they make more on these particular investments.

Age of the client is not an indication of whether a person should be investing in a publicly traded MLP. Many produce large cash distributions that net out in a very friendly tax manner. I have a tax client who invested in NON public traded real estate oriented MLPs. They have been terrific investments the last 20 years. They spit out cash in a very favorable manner - far better than most alternatives.

[Catherine]

4 minutes ago, Roberts said:

Age of the client is not an indication of whether a person should be investing in a publicly traded MLP. Many produce large cash distributions that net out in a very friendly tax manner.

When the MLP's uniformly generate losses, do not produce cash distributions, and don't pan out for the cash-flow-poor older client, it's not a good investment - at least for them.  The only client I have who does well with these things already has bucket-loads of money.  

[Randall]

One client has received $6400 in two years in cash distributions.  But his capital account showing on the K-1 has gone from $80k to $61k.  So I'm wondering how this will play out.  Another client had Enbridge for years, received distributions for years. These are treated as return of capital.  Eventually he received all his capital back and continued to receive distributions, excess distributions, taxable LT cap gains.  He did well with this one.  But they are becoming prolific now and I wonder how long this will go before the fallout.

 

[Abby Normal]

I've seen these generate phantom income on disposition due the ordinary income treatment of part of the gain/loss, especially when people already have cap loss c/o. You can end up with a capital loss on disposition and still have to report ordinary gains on the 4797.

[Catherine]

7 minutes ago, Abby Normal said:

You can end up with a capital loss on disposition and still have to report ordinary gains on the 4797.

And the stupid calculations are a PITA and have to be done with pencil and paper, too.  

[Abby Normal]

3 hours ago, Catherine said:

And the stupid calculations are a PITA and have to be done with pencil and paper, too.  

Have to? We do them on a scan of the documents with pasted in calculator tapes from Judy's TenKey. I picked up a pen to use it the other day and the tip had dried out! Have to keep the cap on now.

[Catherine]

I have found them even more cumbersome to do with the tapes from Judy's TenKey.  That works when there is ONE purchase and ONE sale date - but not (for me) when shares/units were bought many times and then sold off in several chunks.  I lose my place... unless I am using pencil & paper.

[Abby Normal]

On 3/29/2017 at 3:24 PM, Catherine said:

I have found them even more cumbersome to do with the tapes from Judy's TenKey.  That works when there is ONE purchase and ONE sale date - but not (for me) when shares/units were bought many times and then sold off in several chunks.  I lose my place... unless I am using pencil & paper.

Actually, I'm doing one right now and I don't even need any tapes. Just put the basis adjustment number in 8949 adjustment column with code B. Done!

[TAXMAN]

Getting back to the ptp issue. How many of us look at all the states listed on some of these. Do them or not?

[Catherine]

I look up the filing requirements per state, and how much tax was withheld on client's behalf.  If filing threshold is met, we file.  If refund of overpaid tax sufficient to pay my fee, we file.  If tax owed is more than a couple of bucks, we file.