Investing in loopholes, MLP ETF edition

By Felix Salmon
June 30, 2010
Master Limited Partnership tax loophole? Well it turns out that a lot of investment companies seem to be trying to take full advantage of it. Tadas Viskanta notes that everybody and their mother seems to be trying to roll out stock-market-traded funds structured as MLPs, some with valuations north of $1 billion. Essentially, if you list a pipeline corporation directly, there's much more tax to be paid than if you set it up as an MLP and then list the MLP in ETF form.

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Remember the Master Limited Partnership tax loophole? Well it turns out that a lot of investment companies seem to be trying to take full advantage of it. Tadas Viskanta notes that everybody and their mother seems to be trying to roll out stock-market-traded funds structured as MLPs, some with valuations north of $1 billion. Essentially, if you list a pipeline corporation directly, there’s much more tax to be paid than if you set it up as an MLP and then list the MLP in ETF form.

Tadas says that investors should be cautious here: “You should be more discerning in your approach to MLPs now that they have been discovered by the crowd”. That makes sense: there’s a very real risk, now that everybody knows about this loophole, that it will be closed. I hope it will be, anyway.

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