I thought I'd contact Fidelity for some guidance. What a waste of time. I am posting the conversation for your viewing pleasure. I did this in the Chat form because I wanted a record of it. In the back of my mind I sorta knew how it would turn out.
TM: I owned a MLP called ALDW in several of my accounts that merged with Delek (DK) final as of 2/7/2018. With a MLP it is my understanding that the tax liability as well as excess profits are passed on to the unit holder. I spoke to investor relations at Delek and was told former ALDW holders will NOT be receiving distributions for Q4 2017 and Q1 2018 (partial quarter up until the merger close). I believe this is in violation of SEC rules. Can Fidelity provide guidance on this? At the close of the merger I was holding nearly 12,500 units of ALDW. Thanks.
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New party ('Kyle S') has joined the session
Kyle S: Hello, T. I hope that you are well. If you do not receive a distribution of more than $1,000 then there is no tax liability to you from an MLP is you hold it in an IRA.
TM: I am actually expecting a large distribution...$5000 or more. It's not the tax liability I'm concerned with. It's the fact that we are apparently getting shafted on distribution funds that are rightfully ours.
Kyle S: If they are pre-tax funds the only thing that comes into play is that it is taxable as earned income and there is also a 10% penalty because you are under the age of 59 1/2.
TM: I'm not going to be withdrawing anything from my IRA's. My question is about the liability of DK and its obligation to pay distributions for Q4 2017 and Q1 2018. The merger was announced last September but didn't close until 2/7/2018. DK is refusing to pay ALDW distributions between the time of the announcement and the time of the close of the deal.
Kyle S: If it exceeds $1k then there typically is a tax implication.
TM: That's fine. I don't care to pay the tax.
Kyle S: Certainly, that is all that you would be looking at if you are not withdrawing from the account.
TM: I can see I'm not going to get an answer to my question here.
Kyle S: The answer is that you will be taxed, but is all. Anytime an MLP pays out more than $1k into an IRA that distribution is taxed.
TM: Have you even read my question?
Kyle S: I have. Personally, I would work with a tax advisor on this because we cannot provide tax advice beyond what I have provided you/
TM: There is nothing in my question about taxes. I know about those.
Kyle S: I cannot advise if it is violation of SEC unfortunately because at the end of the day that is for SEC to decide and they can overrule what I say as well. Your best resource for that inquiry would be speak directly with them. We have no power over their rulings.
AI
