MLP foreign partner US tax filing

[cipocip]

You seriously don't understand it. Buying into an MLP is buying into a publicly traded partnership, not a stock. The tax reporting associated with owning an interest in a partnership that is probably involved in oil & gas is a LOT more complicated than buying a share of common stock. Worlds apart in terms of reporting and difficulty.

So forgive me if I'm not buying into the whole woe is me, this isn't fair to a non-resident shtick. The dilemma is the same for a US person. There are publicly traded partnerships that take me an entire hour to properly enter into a US person's tax return.

I understand the difference. Even though I have never filed anything involving K1, I imagine it’s easy enough using Turbotax. Even though it may take longer. For a foreigner living abroad, the difficulty is such that only companies and very rich individuals would afford to figure it out for two-three reasons: they cannot open online accounts with the IRS to check their filings, at least I can’t, they cannot guarantee that they will receive the K1 on time and be able to mail the forms back before the deadline and they have to hire a specialized US firm to help them out since there is no software for them. I assume it would cost me a few thousand dollars to do all that, so ten times more time and money than for a US person. Given the annual returns of 8% of these companies, I would need to invest over 100k in mlp’s alone to make it worthwhile.

 

[LdiJ]

I understand the difference. Even though I have never filed anything involving K1, I imagine it’s easy enough using Turbotax. Even though it may take longer. For a foreigner living abroad, the difficulty is such that only companies and very rich individuals would afford to figure it out for two-three reasons: they cannot open online accounts with the IRS to check their filings, at least I can’t, they cannot guarantee that they will receive the K1 on time and be able to mail the forms back before the deadline and they have to hire a specialized US firm to help them out since there is no software for them. I assume it would cost me a few thousand dollars to do all that, so ten times more time and money than for a US person. Given the annual returns of 8% of these companies, I would need to invest over 100k in mlp’s alone to make it worthwhile.

I think its unlikely that it would cost a "few thousand dollars" to do a 1040 NR with a Schedule K1. There may be some firms that would charge that much, but I suspect that many or even most firms would not. On top of that, many, perhaps most, US persons with K1s would not use online software to do their tax returns because they would realize that most online software really cannot handle the complexity of K1s properly. There is too much subjectivity involved in the majority of K1s.

 

[cipocip]

All right, thanks for all the answers.

 

[davew9128]

I understand the difference. Even though I have never filed anything involving K1, I imagine it’s easy enough using Turbotax. Even though it may take longer.

I promise you, it's not that easy though. Consumer software of any type is not equipped to deal with a lot of the stuff involved with an MLM K-1, and certainly not the sale of it when that happens. Inputting numbers is one thing. Doing it and getting a correct result quite another.

 

[cipocip]

Ok, thanks, I see. If something looks too good to be true in the investment world, it probably is.

 

[davew9128]

Ok, thanks, I see. If something looks too good to be true in the investment world, it probably is.

Let me give you the real world version of what happens in these things, and why a layperson investing doesn't understand them. You put in $100k buying an interest in O&G LP through your broker. You get a K-1 for a couple years with a bunch of numbers. Assume there are losses. Likely you can't deduct the losses because of passive limitations on owning publicly traded partnerships. You also get cash "dividends" from the LP.

After a few years, O&G isn't doing well right now so you sell for a "loss". Except you didn't. Broker's only track your purchase and sales price. You didn't sell stock, you sold a partnership interest. All that cash you received over the years? Reduces your basis. All those K-1 losses? Reduces your basis. Now you will finally be able to deduct the accumulated K-1 losses, but when you go back and calculate the sale you find out you have a large gain. Worse, because it was a partnership, a portion of that gain ends up being ordinary gain and not capital. And your broker will be of no help whatsoever because this is way outside their lane.

I roll my eyes a couple times a year when someone comes to me thinking they got some good investment advice buying into these things, that the tax reporting is no big deal, and then they get blindsided by a huge tax hit when they sell because they never understood how they worked in the first place. Then trying to do it on TurboTax? Thats funny.

 

[cipocip]

I actually don’t think that moving forward, the price will continue to drift down as a general rule. If you study MMP for instance, you will see that they have actually grown their earnings and distributions over time, year after year, while their price went down. Projections for the next 30 years show that oil demand will still grow inspite of the electric car revolution. These companies are toll collectors with huge margins, and nowhere as sensitive as big oil companies to the price of oil or gas, and managed to actually grow while oil went down due to the US shale revolution, which increased oil and gas volumes. The increased volumes meant that they have to move more fuel and thus collect more fees. So, once covid is over, the price will eventually go up, simply because the distribution yield would become unreasonably high in time given the opposite trends of earnings and price. Now, the fact that tax can be deferred leads to better compounding, the billionaires’ little secret. So, if I was a US person living in the US, I would consider them wonderful investments from a profit perspective. Now Turbotax. Since you earn money by providing “manual” tax services, I would probably have to convince myself that uploading K1 in Turbotax is indeed buggy. I would try hard to buy and use Turbotax for federal and one state, then adapt the numbers for the rest of the states.

When you started writing about the real world version, I was kind of hoping that you would say that foreigners don’t have to worry about filing as long as they can stomach the withholding.

 

[davew9128]

Now Turbotax. Since you earn money by providing “manual” tax services, I would probably have to convince myself that uploading K1 in Turbotax is indeed buggy. I would try hard to buy and use Turbotax for federal and one state, then adapt the numbers for the rest of the states.

I am fairly certain that the company that prepares many of these K-1s also provides for TurboTax import files, but I haven't looked lately to be sure, not to mention it wouldn't help me in the least. Truth is, a lot of the stuff on those K-1s simply doesn't lend itself to simple plug and play drop in of numbers, and requires manual review.

When you started writing about the real world version, I was kind of hoping that you would say that foreigners don’t have to worry about filing as long as they can stomach the withholding.

I could never make that guarantee.