Master Limited Partnership FAQ

May 22, 2020

A Master Limited Partnership, or MLP, functions as a publicly listed, limited partnership that trades on an exchange. Most of these partnerships feature general partners as well as limited partners, or investors. While the general partners participate in daily company functions, limited partners invest in the business and subsequently provide capital in exchange for cash distributions. If you think a Master Limited Partnership may be right for your investing needs, take a moment to learn what your Los Angeles accountants want you to know. 

Do MLPs Pay Corporate Taxes?

Master Limited Partnerships do not pay corporate taxes as long as their businesses get at least 90% of their income from “qualifying activities,” such as those concerning real estate, natural resources including oil and gas, and commodities including grain and beef. Exemption from corporate taxes benefits investors because they receive higher cash amounts. 

However, an MLP can become subject to Unrelated Business Taxable Income (UBTI) that may be taxable even if an IRA is in place. Los Angeles accounting firms provide the assistance these businesses need to navigate taxation issues. 

Are There Partnership Restrictions?

Only specific businesses enjoy Master Limited Partnership candidacy, such as those working in natural resources and real estate. Restrictions allow businesses to create contracts with investors so they can schedule quarterly required distributions (QRDs) that are often called dividends. And unlike some dividends, these quarterly payments are required. 

What Other Risks Come With MLPs?

MLPs can become vulnerable to interest rate changes as well as high volatility, meaning investing in traditional stocks and bonds may be the better option. The partnerships can also become subject to legislative issues, including state and federal tax code changes affecting the gas and oil sectors. 

So What Are The Benefits?

There are still numerous reasons to consider investing in an MLP due to the possibility of higher payouts than bonds and stocks. Since MLPs are types of national exchanges, they offer greater liquidity than standard partnerships. These benefits come in addition to tax exemptions since the partnerships fall under the pass-through entity umbrella. 

Discuss MLPs with the Encino tax consultants at Wallace and Associates to determine your best next steps. The Los Angeles accounting firm offers assistance for MLPs among many other services.