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Here's my opinion, for what it's worth. If you own KMP, TPP, etc. and their pipelines cross certain states, you will be liable to file a state tax return with those states if your income from KMP, TPP, etc. exceeds the state's exemption level. For example, Michigan allows a personal exemption of $2,800 per dependent. If you received income from KMP in excess of these exemption amounts, you would owe Michigan income tax. On the other hand, if KMP was held in an IRA, there would be no tax due since IRA gains, losses, and dividends are allowed to grow tax free (just like on the federal level). Any gains or losses from the sale of KMP, TPP, etc. within the IRA has no effect on your state of federal taxes and there should be no effect from the changes in the cost basis from KMP returning part of your purchase price in the form of dividends. Go to Motley Fool Home Page, enter "mastered limited partnerships" in the search area and you'll get info on NVEST which may help explain this situation.
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