How to enter a MLP Merger

[RicM]

MLP A merged into MLP B. I received a final K-1 for MLP A. I received a K-1 for MLP B

How do I handle the MLP A Entries?

The MLP ends in 2023

What do I enter to describe the partnership disposal? No entry or not via sale?

How are the passive losses transferred to MLP B? 

[nexchap]

@RicM It depends.  If the merger was a taxable event, you'd think about it (and enter it) as though you did the transaction in two steps:  1) a complete disposition of MLP A where the sale price was whatever the value of MLP B was on that day and 2) a purchase of shares of MLP B.

If it wasn't taxable, then for MLP A you'd select 'The Partnership Ended' and 'Disposition was not via a sale'.  This will mean that all the suspended losses from MLP A will remain suspended.  You'd enter the MLP B K-1 as normal.  TT doesn't do anything to merge the suspended losses from A & B, but you can handle that next year.

NEXT YEAR, when you're filling out the K-1 for MLP B, you'll get to the screen that asks about suspended losses from prior years.  TT will grab the losses from MLP B, but you can change those numbers to be the sum of MLP A & B.  Then just delete the MLP A K-1 that TT created.

[RicM]

Thank you! It was a non-taxable event. Thats how I had entered it in TurboTax but was unsure if I wanted to move the suspended losses this year or next. Thanks again. 

[RicM]

A question. Would you enter the dates for purchase and sales on that page? I tried both entering the date or leaving it blank and it seems to come out the same. 

[nexchap]

@RicM It won't matter.  The dates in the K-1 section only apply if you're having the K-1 interview generate Cap Gains (which you're not) and it has to know holding period.

[PSmith1260]

Hi Nexchap.  One other question on MLP non-taxable merger.  When MLP A (CEQP) merges into MLP B (ET), what happens to the cost basis for MLP A?  Does it also have to be carried forward (separate record only) and combined with cost basis for MLP B when MLP B is eventually sold?

Or does the cost basis for MLP A get figured into the cost basis for MLP B when the K1 is issued for the first time after merger?

[nexchap]

@PSmith1260 Your basis in the new merged entity is just the sum of your basis in the 2 previous entities.  Note that TT doesn't track basis, so that's just something you'd use your own records to monitor.

[RicM]

This is my take. The cost basis for the ET shares received should be the same as the cost of the CEQP shares converted. When the broker sells ET shares, he will use FIFO. If you liquidate all, it is the sum. If partial, you will need to keep up with what goes out. Broker will have an unknown cost basis reported. 

[hbvon1]

Re.the merger discussion.

Yo mention that the unallowed losses of MLP  A  be adjusted next year on  MLP B 's suspended  total. My question, why not update MLP B's  info this year. Either this year or next year the correction is to be made.

[nexchap]

@hbvon1 You could do it that way too.  Entering next year just has the advantage of being doable entirely in the interview, which makes it a bit easier to describe.

[shhughes1116]

@nexchap Instead of a merger between MLPs, how would this example change if an MLP A underwent a conversion to C-Corp A and the event was not taxable? 

I assume you would still go into TT and select "Partnership Ended" and "Disposition was not via a sale".  Suspended/passive losses is a bit confusing though.  In terms of the suspended/passive losses, I assume these are not recognized upon conversion, and would instead be recognized if/when your c-corp shares are sold.  

[nexchap]

@shhughes1116 Since the transaction details can vary, you should check with the partnership on when the suspended losses can be recognized.  TT can track them from K-1 to K-1 (as I've described above), or recognize them when appropriate, but I'm not expert enough on the specifics of these non-taxable conversions to tell you what the correct treatment is.