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AJ is right - NEVER invest IRA/401K/HSA/529 funds in a Master Limited Partnership (MLP). Such an investment is a 'tax trap' which I have been burned by. Worse, anyone else who owns MLP shares inside a tax-advantaged account is already 'trapped' - whether they recognize it or not.

The Situation:

1) MLP does not typically file its yearly K-1 report until May-June. What this means is that any EBIT income is not reported on your 15Apr tax return. Result is that IRS will likely assess penalty for non-reporting of EBIT income.

2) Another gotcha is that MLP will send your K-1 report to the IRS and to your account custodian (e.g. Fidelity) BUT not to you personally. Practical effect is your IRA account is about to get assessed income taxes - and no one will tell you about it until shortly before cash is extracted from your IRA account. I was given 10 days to make sure there was enough cash in the account to pay the tax.

3) Reporting of UBIT income requires filing of a 990-T tax return - as of 2016 your IRA (not you personally) must pay the tax. Fidelity (and likely others as well) will now charge $300 (to your IRA account) for preparation of this 990-T tax return. Ergo, filing 990-T tax return for even a small EBIT tax will now cost your IRA account (not you personally) $300 preparation fee.

4) Apparently IRS rules changed in 2016. Your IRA custodian (e.g., Fidelity) is now required to file a 990-T tax return against your IRA Account - not you personally. Apparently, there is no IRS rule that says your custodian must notify you that such a return is about to be filed.

5) As an ex-shareholder, the MLP representative I talked with essentially responded with 'tough luck'. If MLP stock is held by an IRA account, the MLP routinely reports ALL OF THE LONG-TERM GAINS for that stock as EBIT income. She mentioned the term 'recapture' which is just another term for 'you are scr***'. Remember that K-1 is not distributed until May-Jun of the year following year in which stock was sold - which was about 15 months in my case.

6) I later learned that Fidelity had filed a 990-T tax return for 2016 against my IRA - without bothering to inform me. I managed to thank Fidelity's CEO for this 'free service' - especially since Fidelity would have charged my IRA account $300 preparation fee had this occurred after 1Jan2019.

My Situation:

1) For performance reasons, I sold (last) two MLP stocks from my IRA account in 2017 which I had owned for nearly ten years.

2) Both MLPs apparently (details are still sketchy) reported the all long-term gains as EBIT income in May-Jun2018.

3) I am still unable to get an accurate reading from any of the parties involved (including MLP, Fidelity, several accountants, and the IRS), but my IRA account got hit with a 20% tax rate because of this 'EBIT income'. Fact that this tax rate exceeds even the long-term capital gains tax rate seems irrelevant to all involved.

My Message:

Never invest in a MLP stock - regardless of account type. Appears to me there is nothing but tax grief to be expected from such an investment.
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