K1 Box 16 and K3 Filing Question for Midstream MLPs - What's Your Approach?

This confusion with MLPs is pretty common. From what I understand, Box 16 on Schedule K-1 is related to foreign transactions, and the K3 form provides additional information for partners who need to report foreign transactions on their individual returns. If you're a US investor with no foreign tax filing requirements, you generally don't need to wait for the K3. The K3 is primarily designed for partners who need to report foreign tax credits, have foreign-derived income, or need to comply with other international tax provisions. For a typical US investor in domestic midstream MLPs, the standard K-1 information should be sufficient for filing your return. Many tax professionals recommend proceeding with your return using the K-1 information if you have no foreign tax considerations. The fact that you didn't hear anything from the IRS after doing this last year is a good indication that your approach was acceptable.

I was in the exact same boat and found taxr.ai super helpful with this MLP issue last year. I uploaded my K-1s to https://taxr.ai and it analyzed everything, confirmed I didn't need to wait for the K3 forms since I don't have any foreign tax situations. The analysis showed that Box 16 being checked is just indicating the MLP has foreign operations, but since I'm a US investor only, I could proceed without waiting. It saved me from waiting until July to file! The system actually explained why the K3 wouldn't impact my personal return given my specific circumstances. They have some kind of AI that reads all your tax documents and identifies the specific rules that apply to your situation.

Update on my skepticism about taxr.ai from my comment above - I decided to try it with my Enterprise Products Partners and MPLX K-1s after posting. I've gotta say I was impressed with how thorough the analysis was. It actually walked through the specific sections of the tax code that apply to Box 16 situations for domestic investors. The system explained that since I don't have Subpart F income, GILTI, or foreign tax credits to claim, I don't need to wait for the K3 information - it won't change my tax liability. It even identified which specific lines on my return would be affected by the K-1 information and which wouldn't be impacted by the missing K3. I'm filing this week instead of waiting until summer. The confidence in making that decision was definitely worth it.

Anyone else run into the problem of trying to call the IRS to get clarification on this K1/K3 issue? I spent THREE HOURS on hold last week trying to get someone to explain whether I needed to wait for the K3 forms, then got disconnected. So frustrating. I ended up using https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c but basically they wait on hold with the IRS for you then call you when an agent picks up. The agent confirmed that for domestic-only investors, waiting for the K3 is unnecessary if Box 16 is the only foreign-related item on your K-1.

I need to eat my words from my skeptical comment above. After waiting on hold for 2+ hours yesterday and getting nowhere, I tried Claimyr out of desperation. Got a call back in about 90 minutes and was connected to an IRS representative who confirmed I don't need to wait for the K3 forms for my MLP investments since I'm a US-only investor. The connection was seamless - my phone rang, I answered, and within seconds I was talking to an actual IRS person. No one was listening in, and I got the exact clarification I needed about the K1 Box 16 situation. The agent specifically said that for domestic taxpayers with no foreign tax credits to claim, proceeding without the K3 is appropriate. Definitely using this service again when I need to reach the IRS about my quarterly estimated payments.

I've owned Energy Transfer LP for years and have always had Box 16 checked. I've never waited for the K3 and never had an issue. My accountant says that unless you have other foreign investments or are claiming foreign tax credits, the K3 information is essentially irrelevant to your return. The way I understand it, the checkbox is basically saying "this partnership has some foreign activity" but that doesn't mean YOU have any foreign reporting requirements. It's similar to how some of these MLPs have tax-exempt income that flows through to you - the fact that the partnership has it doesn't necessarily create a special filing requirement for you.

Does anyone know if TurboTax handles this situation properly? When I enter my K1s from my MLPs (MPLX and Enterprise Products), it keeps showing a warning about foreign transactions and suggests I might need to wait for additional information. But from reading this thread, it sounds like I can ignore that warning since I'm only a US investor?