Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

   
Resources - Tax Center - Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York
     
 

Avoiding Tax Liability in Your 401k Plan

 
 

As we were going through the employee benefit audit season this year, we noted an item that was unexpected to one of our tax exempt employee benefit plan audits.  The issue was that one of their investments created unrelated business income tax (UBIT) to the plan.

The investment in question was in a master limited partnership (MLP).  MLP’s are typically traded on one of the major exchanges and combine the tax benefits of a limited partnership with the liquidity of publicly traded securities.  On the surface, these investments seem harmless but being invested in an MLP makes the investee a partner.  Partners receive a k-1 with its share of the income and losses of the MLP which include ordinary business income or rental real estate income as well as investment income such as interest and dividends.  Typically tax exempt entities like not-for-profits, or employee benefit plans would not be taxed on investment income but in the case of an MLP investment, the ordinary business income  or rental real estate income , subjects it to UBIT.  The rules regarding unrelated business income are complex.  Our research discovered that some investors deal with this issue by investing in mutual funds that hold MLP's, as they do not produce K-1 income and consequently will not subject the holder to UBIT.

 

Contact Us

For more detailed information, please call us at 516-248-7361 or click here to email Robert Puerto. We'd be happy to review your plan, communicate with your investment advisor and/or plan administrator regarding master limited partnerships or any other tax matters.

 

 
 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York