Fellow Tax Experts/Nerds 🙂
I recently started buying MLPs and realize that I might be in over my head with some of the nuances so wanted to tap the expertise on this forum. In particular, there are two areas that are still very confusing to me:
1) If I just hold an MLP for a few days/weeks (without receiving any distributions) and I sell out, what will be shown on my K-1? I understand that I will get a K-1 even if I hold an MLP for a second, but how would the income be allocated to me? Is it based on the taxable income times my prorated holding period times my % ownership? So if I held 0.1% of the MLP's units for a month and the taxable income was $12mm, then my K-1 taxable income would be $12mm x 0.1% x 1/12 = $1k?
2) Is there a rule of thumb for materiality in determining when to file state tax returns for the MLP? For example, if my MLP gets taxable income in 30 different states, do I need to file income taxes in every single state? What is the penalty if I don't? I mean would I be on the hook just for the unpaid taxes + late fees or could the states sue me for additional penalties?
Thank you!
