Investor Warning: Potential Tax Trap for MLPs

Stoltmann Law Offices continues to investigate master limited partnerships (MLPs) which are a type of publicly traded limited partnership that qualify for certain tax benefits. MLPs do not pay corporate income taxes on profits. Taxes are paid when the MLP distributes the money to the partners who report that income on their tax returns. This could create a problem for investors, when negotiations with creditors include debt forgiveness. Partners then are expected to pay income taxes on the forgiven debt. If you were sold an MLP investment, you may have a case against the brokerage firm from which you purchased it, because it has a duty to reasonably supervise its employees to make sure they only recommend and sell suitable investments based on their client’s net worth, age and investment objectives. Some of the MLPs include Linn Energy, Atlas America and Cushing Royalty.

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