TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

When making a PARTIAL sale of an MLP, can designating recently purchased unit Lots as the ones to be sold reduce income tax?

I have searched and searched but have been unable to find this answer. I am unfamiliar with the accounting for MLP sales, and have a situation with a PARTIAL sale of an MLP, where it was designated the most recently purchased unit Lot be sold, which is documented by the broker’s statement. The K-1 figured the Ordinary Income based on the FIFO method using the first Lots purchased which are about 18 yrs. old.

The Lot specified to be sold is only about 6 yrs. old. Using the Lots on the K-1 would result in a very large taxable gain. With MLPs, does it really make a difference to designate the most recent Lots be sold (which was done) because it would seem they would have a much lower amount of distributions to be taxed than 18-yr-old units would? Apparently, the MLP will issue a K-1 based on the Lots that can be documented to have been sold (rather than their default FIFO method), and I am wondering if this makes sense to ask them to do this to decrease our taxes?

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Michael Caryl, Tax Lawyer

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