Tax Implications of Selling K1 Partnership Shares (EPD) in an IRA Account

Wait I'm confused. I thought ANY income from K1s was taxable regardless of account type? I have some MPLX in my Roth and was told I'd still get hit with taxes if it generates certain kinds of income even inside the Roth. Is that not right? Also, does this apply to traditional IRAs differently than Roth IRAs?

You're thinking of Unrelated Business Taxable Income (UBTI), which can indeed trigger taxes even inside an IRA. If an MLP generates more than $1,000 in UBTI, the IRA itself might owe taxes on that amount regardless of account type (traditional or Roth). This is separate from the capital gains question though. When you sell MLP units inside an IRA, the gains or losses from that sale are sheltered within the IRA's tax structure. The K1 might show various allocations from the sale, but since they're occurring inside the IRA, they don't flow to your personal tax return.

Does it work for regular brokerage accounts too? I have several MLPs in my taxable account and the K1s are driving me crazy each year. Can it pull data directly from the partnership websites or do I need to upload the PDFs myself?

I'm skeptical this would help more than just calling the partnership directly. EPD investor relations will explain the specific tax treatment for free. Why pay for a service when the company will tell you directly? Also how accurate is this for complex situations?

It definitely works for regular brokerage accounts too - actually that's where it really shines because it shows exactly how each line item flows to your tax forms. It has direct connections to most major partnerships so it can pull your K1s automatically once you set up your account with your tax ID. Regarding calling the partnership directly, I tried that route initially. While they can provide general guidance, they typically won't give individualized tax advice. The service analyzes your specific situation including your basis adjustments over time, which the partnership's investor relations department won't track for you. It's especially helpful for complex situations with multiple years of ownership and partial sales.

How does this service actually work? Does it just keep calling the IRS for you? Seems like something I could do myself for free if I just kept redialing...

There's no way you got through to the IRS in 15 minutes even with some service. I've been trying for MONTHS. And even if you did get through, regular IRS phone reps aren't trained on complex K1 partnership issues. They'd just give generic advice at best.

It uses a system that navigates the IRS phone tree and waits on hold for you. Then when an actual IRS agent picks up, it calls your phone and connects you directly to that agent. It's not just auto-redialing - it's actually sitting in the queue for you so you don't have to waste your time. Regarding the knowledge level of the IRS agents, I specifically requested to speak with someone in the business tax department once I was connected. The regular agents may offer more generic advice, but they can transfer you to specialists once you're in the system. I was pleasantly surprised by how knowledgeable the business tax specialist was about partnership tax issues.

How would I know the total UBTI amount? Does it appear as a single number somewhere on the K1 or do I need to add up multiple boxes? And is my IRA custodian automatically notified about this or is it my responsibility to tell them?

The UBTI amount is shown in Box 20 with code V. It's not a simple single number - you have to identify the specific codes that contribute to UBTI. Mainly look for codes V (Section 751 gain), N (Unrecaptured Section 1250 gain), and sometimes box 1 (Ordinary business income). Technically your IRA custodian is responsible for monitoring this and filing Form 990-T if needed, but in practice many custodians miss this unless you specifically notify them. Most major custodians like Fidelity, Vanguard or Schwab will send you a letter asking for K1 information if they know you hold MLPs, but smaller custodians often don't have systems to track this. It's definitely safer to proactively inform them if you identify UBTI over $1,000.

TurboTax won't handle the 990-T filing for your IRA if UBTI exceeds $1000. That's a separate form your custodian files. But for your personal taxes, you don't enter K1 info from sales in IRAs. If it was in a regular brokerage account, TurboTax Premium can handle K1 entries.

This is really helpful, thanks! I'm new to understanding K1s and this breakdown makes it much clearer. Quick question - you mentioned tracking basis adjustments from previous years. Since I've held EPD for 15 years, do I need to go back and look at all my old K1s to calculate my current basis? That seems like a lot of work. Is there a shortcut or does the partnership provide this information somewhere? Also, when you say "hot assets" what exactly does that refer to in the context of EPD?

Unfortunately, there's no real shortcut for the basis calculation after 15 years - you'll need to track down those historical K1s. EPD doesn't provide cumulative basis information to individual unitholders. However, if you use a major brokerage like Fidelity or Schwab, they sometimes track partnership basis adjustments in their systems, though it's not always 100% accurate. For "hot assets" in EPD's context, this typically refers to unrealized receivables and inventory-type assets that generate ordinary income rather than capital gains treatment. For a midstream MLP like EPD, this often includes things like product inventory, accounts receivable, and certain contract rights. When you sell partnership units, a portion of your gain gets recharacterized as ordinary income to the extent it represents your share of these "hot assets." The good news is that EPD's investor relations department maintains detailed guidance on their website about K1 reporting, including typical amounts for different types of transactions. You might also consider reaching out to them directly - they're generally helpful with questions about basis tracking and can sometimes provide historical distribution information that helps with the calculation.

This is exactly the kind of comprehensive breakdown I was hoping to find! Thank you Kevin for laying out the specific boxes to check. I just pulled out my 2023 K1 and found Box 20 Code V showing $218 in section 751 gain from my sale - well under the $1,000 threshold as you mentioned. One follow-up question: you mentioned that basis reduction over 15 years could increase the UBTI impact. Should I be concerned about future sales if my basis has been reduced to near zero? I'm thinking about potentially selling more shares in the coming years and want to understand if there's a point where the UBTI becomes more problematic for larger sales. Also, has anyone here had experience with Schwab's tracking of MLP basis adjustments? I've been with them for the entire holding period and wondering if their records might save me from digging through 15 years of old K1s.