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MLPs and IRS

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The Wall Street Journal on the potential, or lack thereof, for MLP audits:

 

Is your investment too complicated to be audited?

It could be, say experts, if it is a partnership stake in a large private-equity firm, hedge fund or master limited partnership. Examples include publicly traded partnerships such as Blackstone Group BX -2.88% and KKR & Co., KKR -2.87% oil and gas MLPs such as Magellan Midstream Partners MMP -1.26% or Kinder Morgan Energy Partners,KMP -0.47% and many privately held large partnerships as well.

The Internal Revenue Service reviewed the books and records of only 0.8% of large partnerships with 100 or more direct investors and $100 million or more in assets in fiscal 2012, according to recent findings from the Government Accountability Office, a federal watchdog agency. By contrast, the IRS audited 27.1% of corporations with $100 million or more in assets in the same year.

“Given their tax treatment, large partnerships are well-positioned to avoid IRS scrutiny,” says Noel Brock, a partnership tax expert who teaches at West Virginia University and is both a certified public accountant and lawyer. That protection usually extends to the investments by individuals in such partnerships as well.

Jim Dubeck, a partnership specialist at the accounting firm Moss Adams in Seattle, says that while he is aware of audits of smaller partnerships, he hasn’t seen one of a large widely held partnership in years. Neither has Don Williamson, a practicing accountant who heads the Kogod Tax Center at American University.

“Investments in large partnerships often dramatically raise tax-prep bills, but I’ve never seen the IRS challenge one,” Mr. Williamson says.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.