How to merge passive losses in MLP merger?

[Crazy_Carl]

In 2018 I owned two oil and gas  Master Limited Partnerships (ETE and ETP).  Both are publicly traded.  During 2018 they merged into a new entity ET.  I have checked the "Final K-1" in for ETE and ETP.  Do I also check the "Partnership discontinued during 2018" box or one of the other choices?  And more importantly, how to I get my deferred passive losses moved from ETE and ETP over to ET?

[nexchap · Accepted solution]

On entering ETP and ETE you'd select "This partnership ended..." and then "Disposition was not via a sale".  This will allow you to enter the K-1 as you normally would, but will leave the passive losses suspended.

As for merging, the simplest way is to wait until next year.  When you're completing the K-1 for ET (or for ETP since its still broken out by ET) you'll get to the question about suspended losses from last year.  Edit this entry to be the sum of whatever TT automatically brought over, and what you need to merge.

Note that next year TT will import ETP and ETE again, but you can delete those entries once you've grabbed the suspended losses from them.

One other option, that works only for ETP:  ETP continues to exist, and is broken out by ET, so you'll still have an ETP K-1 in TT.  If the FEIN hasn't changed, you could simply add the values supplied by ETP (on your final K-1) and by ET (for the ETP sub-K-1) together, and keep processing ETP as normal.

[taxpayers1]

I'm hoping to get more clarification on how to carry over the suspended losses for each of the PTPs that exist under the "umbrella" of the Master Limited Partnership, since each PTP, as well as each activity within that PTP (e.g. from box 1 - Ordinary Business Income or Loss, box 2 - Net Rental Real Estate Income or Loss, or box 3 - Other Net Rental Income or Loss) results in a separate K-1, and each of those K-1s may have suspended losses.

I've had ETP for several years, and from year to year the PTPs change, and the activities for each PTP change, so when TT imports the K-1s from my previous year's return, it often will not match what needs to be entered for the current year. For instance, in 2016 my ETP MLP resulted in seven K-1s being created in TT: three separate K-1s for ETP as it had activity in box 1, 2, and 3; one K-1 for Sunoco Logistics (SXL); two K-1s for Sunoco LP (SUN); and one K-1 for PennTex Midstream Partners (PTXP). However, in 2017, my ETP MLP no longer had Sunoco (SUN) as a PTP, nor did it have any activity in box 2 for ETP, so three of the K-1s from my 2016 return were not not part of my 2017 return, and two of those K-1s had suspended losses to carry forward. And now from my 2017 return, TT has imported the K-1 for SXL and PTXP which are no longer part of the ETP MLP, and both have suspended losses to carry forward.

How do I carry forward the suspended losses from the PTPs that no longer exist within the ETP MLP? And if passive losses can only be offset by passive gains within the same PTP, then what happens to those losses when the PTP is no longer a part of the larger entity? Can I adjust the suspended loss in the final ETP K-1 for 2018 to reflect the losses from the SXL and PTXP PTPs carried forward from 2017 even though they are from completely separate PTPs? Any help would be appreciated!

[nexchap]

Your suggestion at the end is correct for SXL.  When ETP bought SXL, your SXL units became ETP units.  And the passive losses you had for SXL became ETP passive losses.  So when you get to the ETP question about suspended losses from last year, you'd add together what you had from ETP and from SXL.  Then you can delete the imported SXL from your return.

On PTXP, it depends on what ETP did with them.  If they were absorbed like SXL, the handling is the same.  But if ETP simply divested the stake in 2017 then that should have been a complete disposition from your end back in 2017.

For a different case, ET has now absorbed ETP BUT has kept ETP alive as an ongoing entity.  In this case, the ETP passive losses from its standalone days just stay with it under the ET umbrella, since PTP continues to stand as a legal entity..

Finally, in the case where SUN was part of ETP in 2016, but not in 2017, handling could happen a few ways depending on what specific information ETP provided in their K-1 package about the disposition (they'll explain it there or with the reps at taxpackagesupport) AND whether you own SUN outside of ETP.  If for example, ETP sold their SUN stake and you don't own it anywhere else, that would qualify as a complete disposition of SUN.

[taxpayers1]

Okay, this is definitely becoming clearer. Actually, I never owned SXL outside of ETP. It was a separate PTP reported on my ETP MLP K-1. However, they did merge in 2017, and neither SXL nor PTXP was reported as "disposed", so I think this must mean that they were both "absorbed". In that case, it seems like I should adjust my 2018 ETP passive loss suspended to include the passive losses suspended for those entities. Similarly, the passive losses suspended in the 2016 tax year for SUN Box 2 Net Rental Real Estate Income (Loss), as well as the losses suspended for ETP for Box 2 activity, should probably also be rolled into the passive losses suspended for the primary ETP K-1 in 2018, because these entities were never "disposed"?

One last question: If I adjust the passive loss suspended for the K-1s that TT pulled in from my 2017 return, and I indicate that these are "final" K-1s (there are two K-1s for ETP and one for USAC - both of which appear to be continued as separate entities in the ET MLP tax package), can I also adjust the suspended losses in the K-1s created for both ETP and USAC under the ET umbrella this year so that the numbers will be imported correctly next year when I begin my 2019 tax returns? This way, my 2018 tax return will still contain K-1s for those entities being reported as "final" and "disposition was not via sale". And I won't have to remember next year to adjust the numbers if I already have the numbers corrected in the new ETP and USAC K-1s.

[taxpayers1]

One more thing I want to verify is whether I should always adjust the passive loss suspended when the K-1 for a PTP changes from one year to the next. For instance, in tax year 2016, I created a K-1 for ETP for data in box 2, and there were passive losses suspended for that year. However, in 2017, ETP did not report anything in Box 2, so I deleted the K-1 that was imported from tax year 2016, without carrying the losses forward. Should I have adjusted the passive loss carryover for the other K-1 I had for the same ETP PTP to include those losses from a different activity (Net Rental Real Estate Income/Loss)? And should I always attempt to find a place to carry any losses forward in TT so that I have a record of the losses when it comes time to use them?

[nexchap]

@Taxpayers:  2nd question first -- you shouldn't have deleted the box 2 ETP K-1, even though there was nothing there for 2017.  The reason is that, just like losses from one PTP can't be used to offset income from a different PTP, losses from one type of passive activity (e.g., box 2) can't be used to offset gains from another type of passive activity (e.g., box 1).  So those box 2 losses just sit there until a) you have box 2 income or b) you sell the PTP.

On the first question, I've found it easier to combine suspended losses in the following year because there's a very clear spot in the interview where it asks for input (do you have prior year losses), there's no overrides necessary to do it there, and I can't delete the K-1 for the PTP that's going away this year anyway.  So its going to be there next year when TT inports it, and I'll still have to remember what to do with its passive losses.

There's probably some way to handle it this year without causing problems, but I haven't looked for it.  I just put a note into my "next year" tax file about the need to make the combination.

[taxpayers1]

Okay, so in 2017 I made a mistake when I deleted two K-1s associated with Box 2 activity, one for ETP and one for SUN (both under the ETP MLP umbrella). The Box 2 K-1 for ETP should NOT have been deleted in my 2017 return because I still had Box 1 and Box 3 activity for ETP. But the SUN PTP was absorbed by ETP in 2017, so should it's Box 2 K-1 losses have been combined with the ETP Box 2 K-1 losses? If so, can I just add that K-1 back into my return for 2018 and use my 2016 and 2017 returns to enter the proper data?

As for the first question about combining the suspended losses, I will take your advice and get all my numbers adjusted for the "final" K-1s that I enter for ETP and USAC and wait till next year to combine them with those same entities under the ET umbrella. I sure wish this wasn't so complicated, but I am so grateful for your help! Thank You!

[nexchap]

@taxpayers: I don't know the 100% correct way to fix this -- whether you have to amend or whether you can just make things right in 2018.  I suspect, assuming there's no tax impact, you can just fix 2018 but you may want to get CPA advice on that.
As for where SUN went in 2017, I'm not sure what's correct.  ETP didn't report it, but SUN (Sunoco LP) still exists as a ongoing concern (and also shows up in the 2018 ET K-1).  So merging it with ETP may be correct, or the only thing that makes sense given the lack of info, but you may want to contact taxpackagesupport, or investor relations for ET, to see if they can tell you if it was combined or sold.   

[taxpayers1]

@nexchap: Taxpackagesupport for ETP confirmed for me that SUN, SXL and PTXP were all absorbed into ETP in 2017 and 2018, so that question is answered. And I think I'm simply going to make things right in my 2018 return. If I need to amend, as there is no tax consequence, I believe it would amount to a statement detailing why I've added back a K-1 that I previously deleted from my return. Thanks again for your help!

[sansouci]

My TT doesn't have the option on K-1 Info worksheet 2 under Part II to enter "Disposition was not via a sale" So what do I do?

[ras208]

in 2022 one of my MLP merged into another how do I treat this so my passive losses flow into the new MLP

Ralp   [phone number removed]

[email address removed]

[AliciaP1]

For 2022 you will report your "old" MLP as normal with the passive activity losses attached to it and the Schedule K-1 needs to be marked This partnership ended in 2022 and Disposition was not via a sale.  Then enter the Schedule K-1 for the "new" MLP partnership but do not report any carryover losses for it in 2022.  When you prepare your 2023 tax return (next tax season) you will delete the "old" MLP Schedule K-1 and only enter the "new" one but report the carryover losses that remained from 2022 here.

@ras208