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MLP Sale (MMP acquired by ONEOK) fun

Turbotax has been very unhelpful with what one would think is a relatively common transaction, which this year must have affected thousands of investors due to the sale of MMP forced by the acquisition (I tried their tax experts and even full service, with no success)

My broker reported the sale of multiple lots of MMP with "cost basis Not Reported to the IRS", and they were imported in section Form 1099-B "Stocks, Cryptocurrency, Bonds, Other"; however they were marked as "need review", and the wizard required to manually select the investment type (ESPP, RSU, stocks, ETF etc) but there was no category matching "Partnership", so I manually deleted these entries, and proceeded through the K-1 section. 

At the final review, in the generated form 8949 TurboTax somehow has reported the proceeds as a single transaction, and checked box (F) - transactions not reported to you on form 1099-B; however the correct box should be (E) - transactions reported on Form 1099-B showing basis wasn't reported to the IRS.

This seems incorrect, and I suspect it could be due to me deleting the sale entries from the "Investment Income 1099-B" section "Stocks, Cryptocurrency, Bonds, Other" section, but I'm clueless at how I could have reported these in that section since there was nothing matching the investment type.

Anyone had the same problem? 

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2 Replies

MLP Sale (MMP acquired by ONEOK) fun

TAX IMPLICATIONS:

The transaction will be a taxable event for Magellan unitholders and will cause ONEOK to have a step-up in tax basis approximately equal to the aggregate purchase price of Magellan units and Magellan debt assumed (approximately $18.8 billion). The premium and cash portion of the consideration may assist with potential tax implications for Magellan unitholders occurring from this transaction. This transaction is expected to defer significant corporate cash tax liability into future periods for the combined entity.

https://ir.oneok.com/news-and-events/press-releases/2023/05-14-2023-232007760 

also see

https://www.barrons.com/articles/magellan-midstream-oneok-tax-hit-stock-9de13555 

 

 

so it seems that you treat the merger as a sale of MMP for the cash and Fair Market Value of OKE on the date of the merger

 

your K-1 package should contain a supplemental sales schedule as to tax basis and portion of gain to be reported as ordinary income

 

here is standard reporting for sale of a publicly traded partnership.

hope the following helps - total disposition only

 

MLP and PTP reporting k-1 and 8949/1099-B

Enter the k-1 info
Check the PTP box
If total disposition then:
Check final K-1 (s/b marked on actual k-1)
Check sold or otherwise disposed of your entire interest

On the k-1 disposition section for sales price use the ordinary income. It would be reported in box 20AB of K-1 and a column on the sales schedule. Sometimes you’ll see a column with the “751” or the words “Gain subject to recapture as ordinary income” or similar wording on the sales schedule. The following is for the k-1 sale section - not the 8949/schedule D 

 Sales Price = line 20AB (1065 k1) 
* Selling expenses = 0
* Basis = 0 (zero – nothing else)
* Gain is computed and should be the same as the sales price.
* Ordinary gain = enter the same amount as the sales price
* Other lines should be zero
This amount flows to form 4797 line 10 and is taxed as ordinary income. This step is necessary, so any suspended passive losses are now allowed assuming complete disposition.

Some do not understand the above. The 1099-B (capital gain/loss portion) reporting is not done in this section in Turbotax. Doing so will result in reporting the sale twice if you enter the 1099-B info.  

 Now for the 8949/1099-B Capital gain/loss reporting
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid or was adjusted due to a merger or acquisition but does not reflect the k-1 activity. 

The correct tax basis is (note that your sales schedule may have a column that reports the adjusted/average tax/cost basis excluding the ordinary income which must be added):
What’s on the sales schedule as purchase price/initial tax basis (usually column 4). 
There is a column on the sales schedule that says cumulative adjustments to the basis. If it’s positive add it to the cost shown. If it’s negative subtract the amount. Some sales schedules do the math for you and have a column titled something like adjusted cost basis 
Finally, add the amount of ordinary income reported above.
The result is your corrected cost/tax basis for form 8949 – the capital gain/loss portion.

Read the info provided at the top of the schedule about what the columns represent.  

 


Some other things. Look at line 20AB. That number should be added to the ordinary income above for reporting the 199A (qualified business income from the PTP). You don’t have to enter this but then you lose out on a tax deduction = 20% of this amount.

 

 

 

 

MLP Sale (MMP acquired by ONEOK) fun

Thanks a lot Mike!

Still I don't understand how to correctly report the sale proceeds (for capital gain) in Form 1099-B in TurboTax.

When using the step-by-step wizard, under "what type of investment did you sell", there is no "Partnerships" option.

I tried choosing "Stocks" but it does not seem quite right.

And if editing form 8949 directly, there is no way to way to specify "Code X" which according to my broker "IRS Instructions require Unknown Term transactions to be assigned Code X for reporting on Form 8949."

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