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
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
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
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
rules regarding unrelated business income are
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.
For more detailed information, please call us at
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