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Author: stockmover Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120780  
Subject: Royalty Trust Income Date: 3/7/2009 9:56 PM
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Hi everyone.
I am considering buying some stock which reguarly distributes royalty income. I have read some horror stories on the Fool msg boards how this income is reported on Sch E and that some stocks are notorious for sending out "corrected" 1099's very late during the filing season and of course required that an ammended return be filed for those folks who already filed their return.
I was wondering if I can avoid all these problems by purchasing these stocks within my traditional IRA to avoid these problems? Logic tells me yes, but as Phil often says ...the IRS is NOT always logical regarding their regulations.
Will this work for me? Any advice would be appreciated.

TG
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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105009 of 120780
Subject: Re: Royalty Trust Income Date: 3/8/2009 9:11 AM
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I am considering buying some stock which reguarly distributes royalty income. I have read some horror stories on the Fool msg boards how this income is reported on Sch E and that some stocks are notorious for sending out "corrected" 1099's very late during the filing season and of course required that an ammended return be filed for those folks who already filed their return.
I was wondering if I can avoid all these problems by purchasing these stocks within my traditional IRA to avoid these problems? Logic tells me yes, but as Phil often says ...the IRS is NOT always logical regarding their regulations.
Will this work for me? Any advice would be appreciated.


This potentially could be an even worse nightmare within an IRA account. If the investment reports its income and distributions to you via a Schedule K-1 and not a 1099-series form, you have to worry about Unrelated Business Income (UBI). If your IRA receives more than $1000 in UBI in any tax year, it must file its own tax return and pay income tax.

Ira

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Author: stockmover Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105028 of 120780
Subject: Re: Royalty Trust Income Date: 3/8/2009 6:52 PM
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WOW!!!! Just when I thought I had the key someone changed the lock !!!
Thank you so much Ira for this valuable information. That is why I love this board ....so many great and knowlegable folks who always help out.
Thanks again Ira for the info :)

TG

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105038 of 120780
Subject: Re: Royalty Trust Income Date: 3/8/2009 9:10 PM
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One other thing to consider - many of these royalty trusts are Canadian. (Hence, they're often called CanRoys.)

If so, you start getting into foreign tax issues. Most significantly, Canadian income tax will be withheld on most distributions. It won't matter if the interest are held in an IRA or a regular taxable account - that tax will be withheld.

When held in a regular taxable account, you can claim a foreign tax credit for the tax. But in an IRA, that foreign tax is just gone. In effect, it reduces the return on the investment.

--Peter

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Author: stockmover Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105050 of 120780
Subject: Re: Royalty Trust Income Date: 3/9/2009 2:57 AM
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Gee this just keeps getting better and better (shaking my head). I decided to forego my decsion to invest in these types of securities ..... too much of a tax headache !!!
Thanks Peter for the info.

TG

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Author: stjoe56 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 105093 of 120780
Subject: Re: Royalty Trust Income Date: 3/11/2009 11:06 AM
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Investing in a master limited partnership also has state income issues.

Since many of these conducted business in more than one state, you might have state income tax liability in each state the MLP does business.

This year, TaxCut could NOT handle the Pope Resource MLP on the federal return.

SJ

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