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No problem. I still think it is crazy that someone could unwittingly incur a huge tax liability many times the value of the profits they made if they traded an MLP.
For example, that link from LINE gave examples of 1, 3 or 5B of debt being cancelled, resulting in 2, 8, or 14$ of CODI PER SHARE!!!
Imagine some hapless investor deciding to buy LINE after BK... they are trading at 10c per share so he's like... well, lets buy 20K$ of it and play it for the BK bounce. Meanwhile, he is unwittingly on the hook for 200,000 shares of LINE, and if they restructure 5B$ of debt, he now has an tax liability of 200,000*14 = 2.8 MILLION dollars! His AGI just went up by 2.8 MILLION dollars, and so he would then owe like over 1 MILLION DOLLARS in taxes. This is crazy!!! ok. I'm a little more calm now. LOL. But still!!!
I am not a tax professional so I don't even want to venture a guess to the answer to your question. All I know is that I am scared enough that I don't think I ever want to trade an MLP again.
Although I don't have any LINE, I _did_ trade it on Feb 5 and Feb 8 (100K share positions, plus) which scares the heck out of me, to be honest. I guess I will just have to go over the K1 I get line by line when I get it in Mar 2017. Till then I guess I'll have to just worry :(
More info on IRAs with MLP's in the comments... I don't know enough to know if this is correct, but I would assume so:
http://seekingalpha.com/article/3956525-mlps-critical-often-overlooked-tax-implications-suspended-distributions-debt-restructuring
kennethfine
Comments (216) |+ Follow |Send Message
Somebody with real knowledge should reply, here, but what I've heard from similar comment threads elsewhere in SA suggests that the following can happen: 1) UBTI exceeds allowable amount for the year 2) IRS notices this fact 3) IRS reclassifies multi-milllion dollar IRA account based on excess UBTI and/or demands appropriate tax liability 4) hapless investor cries a lot, tells wife, wife throws bar stool and breaks it, apologizes, lots of tax is subsequently paid to Uncle Sam. I wanna avoid all that.
22 Apr 2016, 05:14 AM Report Abuse Reply 0 Like
Mark_A
Comments (6110) |+ Follow |Send Message
"3) IRS reclassifies multi-milllion dollar IRA account based on excess UBTI and/or demands appropriate tax liability"
As someone who was a licensed CPA for many years and has recently dealt with partnerships in an IRA, I am fairly knowledgeable about this. There is no truth to item 3).
A taxpayer who exceeds $1000 per year in UBTI for their IRA account will have to pay corporate income taxes on the excess amount. The tax form (990-T) is filed with the IRS by the plan administrator, such as your broker, who will also pay any taxes due out of your IRA.
Your broker or IRA administrator should be requesting each year that you notify them if your K-1 total UBTI exceeds $1000 per IRA account, as they do not have access to your K-1 statements from your partnerships, even if they do know you own some partnerships in your IRA. I know that Charles Schwab does this.
The tax law about UBTI applies to other tax exempt entities as well, some of which are gigantic compared to an IRA, and this particular tax law about UBTI probably would not even exist if it only pertained to relatively small IRA accounts.
Your reference to "real" knowledge on SA is ironic, since you seem to be throwing gas on the fire by repeating number 3), without anything to back it up, and even though you probably suspect it is not true.
22 Apr 2016, 06:45 AM Report Abuse Reply 0 Like
Mark_A
Comments (6110) |+ Follow |Send Message
I will add one thing about MLP's (and UBTI in particular) if one owns them in an IRA account. If the MLP goes through a restructuring/bankruptcy in which any debts are cancelled or reduced (if bond holders take any haircut or get wiped out), there will be income recognized to the partners called CODI (cancellation of debt income).
The CODI will be classified as UBTI if owned in an IRA account. The amount of UBTI is likely to be many times the value of the investment and such tax liabilities to the partner cannot be discharged by the bankruptcy of the partnership.
But the CODI (and subsequent tax liability) is also applicable to partnerships held on regular brokerage accounts. Therefore, it is not a good idea to be holding an MLP (or any partnership) in any investment account, it that partnership is going through a negotiated restructuring of debt or bankruptcy.
Re: LINE (IRA): That's actually incorrect, to my understanding... you can still be liable if it is UBTI. With LINE, it WAS UBTI. (page 8 in the following file)
http://files.shareholder.com/downloads/LINE/0x0xS1193125-16-544871/1326428/filing.pdf
http://www.justanswer.com/tax/9o3z3-bought-3000-shares-lp-ira-held-weeks.html
Again: I am in no way formally tax-qualified... this is just my understanding from what I have read over the past few hours. Please consult a tax professional... I know I am going to.
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$LINE/$LNCO: UN-REAL... I spent the last couple of hours reading about cancellation of debt income (CODI)... as a public service to this board, PLEASE READ about it. Since many of you trade bounce plays... you could be opening yourself up to huge tax liabilities if you own an MLP (such as LINE)... and they cancel debt while you are holding it.
For example... let's say the stock is trading at 10c tomorrow... (LINE) but they then cancel 10$ of debt per share in the bk negotiations... You are then liable for taxes on 10$ PER SHARE... because that counts as income. Even if you sell the stock at 11c and think you make 1c per share profit, the taxes (as I understand it) are treated like you made a 10$ per share profit.
Let's say you buy and sell 100K shares... well... you just incurred a tax bill you would have to PAY for 1M$ "profits"... because cancellation of debt income (CODI) is counted as profits.
This is insane. My mind is blown.
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p.s. I am not a tax professional, and this is just my understanding of the situation, which could be wrong. I have no interest in LINE/LNCO long or short.
p.p.s. be careful out there.
p.p.p.s. Also... since LINE cancelled debt in 2015 (nov) those people owning at that time had to pay taxes on that cancelled debt. Crazy!
http://www.wsj.com/articles/linn-energy-looks-to-ease-tax-hit-on-investors-1457554295
http://seekingalpha.com/article/3830856-linn-energy-surprise-tax-bill
This guy may be a basher but geez... I think the points he makes are legit:
http://stocktwits.com/rypetersen1975
http://www.nytimes.com/2016/02/21/business/oil-price-drop-may-add-to-tax-bills-for-popular-energy-investments.html?_r=0
LINE/LNCO: TBH, this is scaring the heck out of me. No position.
http://www.conferencecalltranscripts.org/8/summary/?id=2742775
"All existing equity interests of the Company, LINN Energy and Berry will be extinguished without recovery."
The second thing that is scaring me is this CODI stuff... I don't understand tax law much at all, so it seems crazy you could all of a sudden owe taxes on money you didn't make when debt was cancelled... but that is what this article seems to say:
http://seekingalpha.com/instablog/4193841-wyco-researcher/4867635-linn-energy-many-tax-issues
"Linn Energy LLC (NASDAQ: LINE) has some serious tax issues. Holders of the units could have significant tax liability issues that could be greater than the current prices."
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KMPH: I haven't really looked at the stock much, but here is the bull argument.
http://seekingalpha.com/article/3972255-kempharm-ad-comm-numbers-real-story
With bios (like IBB or XBI) getting killed so bad recently, idk.
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KMPH: So the whole point of Kem's technology is abuse deterrence... anyone can make an equivalent of an opioid/acetaminophen combo... it's just that Apadaz is supposed to make it more resistant to abuse.
So if the FDA doesn't think the Kempharm prodrug is more advantageous than just hydrocodone/acetaminophen... then what is the point of using it?
“We continue to believe in the value of our prodrug technology as a platform for developing prescription opioids with abuse-deterrent properties,” said Travis C. Mickle, Ph.D., President and CEO of KemPharm. “While it is inevitable that there will be different points of view when evaluating new molecular entities with abuse-deterrent properties, we will continue to work collaboratively with the FDA to complete the review process of Apadaz.”
http://investors.kempharm.com/phoenix.zhtml?c=253970&p=irol-newsArticle&cat=news&id=2165869
BTUUQ: I'm sick because I sold at ... wait for it... wait for it...
70-ish cents! (For a measly profit of like 7K$. Left like 100K$ on the table. DOOOOH!!!)
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BTUUQ: Nice little consolidation/pullback here to the 0.88's range... still holding for much higher IMO.
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BTUUQ.PK: Finally got one here... Wished I had gone in really big but went in pretty small-medium unfortunately. Still holding and trying to figure out how far this 10M short covering bounce will last.
http://www.bilderload.com/daten/btuuqMBFRE.jpg
Since arch coal (now ACIIQ) declared BK, gapped down to like 14c or whatever, and traded down to 11c a couple of days later... then went up to 79c, I don't see why Peabody couldn't make a huge move. Arch had like 6.5B$ debt and 5.8B$ assets... on the other hand, BTU has 10.1B$ debt and 11B$ assets. So... could BTUUQ hit 2.5$? I wish! #neversaynever
Arch (more debt than assets): (5.85B vs 6.45B)
http://www.leveragedloan.com/bankruptcy-arch-coal-files-chapter-11-has-275m-dip-loan/
Peabody: (more assets than debts): (11B vs 10.1B)
http://uk.reuters.com/article/uk-peabody-energy-bankruptcy-idUKKCN0XA0NY
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Wish I had done the same... instead I was handed a 6-fig loss. oof.
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$CMRX: IMO the stock is going to trade essentially independently of $IBB tomorrow... the news is far more important for the pps. That being said, the only way the IBB may affect the trading is since IBB and the bios had a huge bounce in the past week, people may think that bio-mojo is back and the overall sentiment in bios is much better than it was last week... which means that a gap up on $CMRX will be much bigger than if it had happened when everyone thought $IBB was going down to 0. LOL.
Time will tell.
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$CMRX: They did but as I understand it, they also sold shortly thereafter. But other big funds have taken positions.
Right now there is a battle for perception going on on stocktwits... The shorts and those longs who were caught out of the stock are bashing away... trying to convince people the results are bad, by recycling old headlines, IMO.
The huge drop on the initial results, which took the stock down to cash value, essentially, factored in total failure of brinci, IMO, and so finding these positive subgroups is a huge improvement over that.
I also think it is a big deal that the co is going to talk with FDA about the successful subgroups and their risk-benefit... IMO only one reason to do this, and that would be if they thought they might be able to get approval for those sub-groups.
I also think that these bashers may be trying to get $CMRX to open up way lower than it should, like 11$, to try to shake out the weaker hands, while they accumulate... i.e. they may try to slow-play this like they did with $ZFGN on Jan 20, which basically opened up at 8, shook some people out, then ran to like 11's that day.
*************
Next Steps for the Brincidofovir Clinical Program
Chimerix will discuss the SUPPRESS data in full with the U.S. Food and Drug Administration (FDA) and foreign regulators, including the benefit-to-risk profile in specific sub-populations, as well as the current adenovirus and smallpox data, to determine next steps for the brincidofovir clinical programs.
*************
Discl: partial long position in $CMRX, wish I had bought much, much more.
$CMRX: Great subgroup news out this weekend at the BMT conference. IMO the pps was crushed because people thought the P3 failed completely... now they are reporting positive sub-groups and explaining reasons why the drug should not be written off.
http://finance.yahoo.com/news/chimerix-announces-presentation-detailed-results-021551604.html
Also, huge insider transactions (CEO got ~500,000 shares in Jan at 8$)
http://files.shareholder.com/downloads/AMDA-1QNA05/1560451541x0xS1209191-16-91103/1117480/filing.pdf
IMO the twitter feed has been bashing all weekend because they realized they were looking the wrong way and are trying to get in lower. IMO CMRX hits 20$ in 2016...
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Nice oil bounce! Go UWTI!!!
Agreed. I personally think that oil here sub-30 is going to be a big moneymaker this year... we will see 50$ at least, in 2016 IMO.
I think if we had asked Willie Sutton what he would have traded in the past 5 years, he would have said "biotechs... because that is where the money is".
Now, I think he would say oil :D
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Bought oil (via UWTI) here at 1.40... small psn
Buying oil here (UWTI at 1.402)
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IMO the selloff in these microcap bios are starting to become ridiculous. Where is the bottom?
Lost 31K$ trading ZFGN and BCRX today. Super annoying.
http://www.bilderload.com/daten/28165NLB5.jpg
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Yuck. Lost 31,000$ today trading ZFGN and BCRX (buying at 2.29 was not a good idea, apparently LOL)... super-annoying day...
http://www.bilderload.com/daten/28165NLB5.jpg
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Wow... what a selloff... EDIT is below IPO price, my ZFGN got hosed (lost 10K$ selling at 6 ish)... where is the bottom? I have been long bios for so... long it's all I know *sniff sniff*
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IMO the Zika virus doesn't just have the psychological impact that Ebola has... everyone knows about Ebola, and it elicits a visceral response that Zika doesn't...
so the response is muted imo. Not to say that there isn't going to be one though. Maybe delayed by a few days or weeks? Idk...
no position in any Zika plays ATM.
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IMO the bios have to be traded for much shorter periods of time... only near-term catalysts for me, IMO.
Oh believe me, I have been burned on bios before... so I'm only going in 1/4 as much as I really want to go in here...
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ZFGN: Yep. Believe, me, I know about those two deaths... but I am a contrarian, so bring it on. Plus they occurred in the PWS population, which is notorious for thrombotic complications.
Not to post too much DD here and get banned, but they are presenting the obesity P2 data, and the plan forward for PWS. IMO those will be positive catalysts. But time will tell.
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ZFGN: I think they have positive obesity data, looking for a gap up of maybe 30%, idk. Too bad for those folks that bought in the 12's... feels like they puked up their shares already.
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Hehe yeah, right! well, I was snowboarding all week working on my 180s off of a hip. Basically a much more impressive version of this:
Sold $EDIT 18.55... should have sold yesterday on that run into the 19's. Oh well. bought LINE (200K) at 0.52, sold at 0.58 way too early. Traded LNKD a few times for basically nothing. +30K$ on the day.
Long ZFGN at 6.55-ish for their conf feb 9 and upcoming obesity P2 data/PWS path forward. Sometime in Q1.
http://www.bilderload.com/daten/2516TLTY2.jpg
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Sold my $EDIT 18.55 as it seemed to be petering out (+17K$), bought 200k LINE 0.52, sold 0.58, ~30K$ on the day.
bought 23K ZFGN 6.55 ish
http://www.bilderload.com/daten/2516TLTY2.jpg
$EDIT: Where's the volume? Need the CBS Evening News to do a CRISPR special. Looking for low to mid 20's when volume finally comes in.
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$EDIT is super thin here, IMO... if this gets some more media coverage then I'd expect to see low to mid 20s in a week... time will tell.
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$EDIT: If we get a nice bio bounce here and money starts flowing back into the bios then EDIT is going much, much higher. I think right now people are skeptical of the bios (hence why EDIT had to price on a bad day, at the low range). But we shall see...
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$EDIT: IPO today (2/3) and I went long 7.8K @16.24. First IPO of 2016... Hoping they parlay the Gates/Google connection into a rally... We shall see...
I was wrong about the stock running up 50% today... but maybe in a few days? I dunno...
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=120276524
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$EDIT: Nice to both you and the Crude one ;)
I am wondering where all the volume is on this one... well, I guess we will see what tomorrow holds. The stock was definitely helped by the market bounce.
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p.s. for those who are not following the CRISP-Cas9 story, here are some articles if interested:
http://www.latimes.com/science/sciencenow/la-sci-sn-crispr-cas-9-20151218-story.html
http://www.wired.com/2015/07/crispr-dna-editing-2/
$EDIT: Nice position... I only have 7800 shares at 16.24... 10k is nothing to sneeze at. Nice little fakeout sub 17 on low volume. My hope is that they parlay a nice little EDIT bounce into some good bio news that makes IBB/XBI bounce. In that case, I would sell EDIT in 2-3 days. But time will tell...
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$EDIT: I am going to make a bold call and say that the first CRISPR-based IPO ever (opening today) is going to end the day more than 50% up from where it opened. Or at the very least, will hit a price more than 50% higher than the first trade. No position yet (obviously)... but anxiously awaiting the open.
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XON, INO, GNVC... which Zika virus play to buy hmmmmmm... GNVC may be the best as it is coming off bottom and tiny. Anyway, this is not trading advice...
GBSN: I ended up trading a 200k bloc in at 0.2343 average and selling at about 0.265 for 6K$. I should have either bought earlier or have traded into KOOL. What a move on that one, saw it at 0.16...
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Thank you. I have seen that link. I personally try to stay away from pdufa dates and lean towards playing adcoms. If anyone wants to play adcoms, fdatracker has a nice adcom explorer that I like playing with...
https://www.fdatracker.com/adcom-explorer/
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Thanks. I had thought it would bounce... added too much early (700K at 0.18-0.19 ish)... then had to add another 300k at 0.125... then sold it all around 0.295ish from 0.16. Then screwed up and went back to the well... bought 500k at 0.29, sold at 0.265 when I realized the stock was weaker than I thought.
Then bought 100k for fun at 0.237... could have sold that at the open at 0.28 ish but screwed up and sold at 0.254 for an additional 1700$.
So total take was 129K$. Really happy with that, not going to lie. I think I am done trading GBSN though.
http://www.bilderload.com/daten/gbsn125164IRJP.jpg
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