If I own closed end funds in an IB account...

S

Saltynuts

I would like to buy some MLPs (royalty trusts as well), but HATE having to get all those K-1s at year end and deal with those on my tax return.

I believe if I buy closed end funds that own these, rather than get K-1s (or those royalty trust information returns), I will just get a 1099 from the closed end fund? Is that correct?

And if I get a 1099 from a closed end fund, will IB report that to me together with all my other 1099 items (such as 1099-DIV from C corps, which all show up on a single 1099-DIV per account), or will I get a separate 1099 issued to me by the closed end fund? I hope its just aggregated so if I hold say 10 closed in fundd in an account I don't have to track down separate 1099s for each of them each year for reporting purposes, its instead just all on my IB tax information statement.

Thanks!
 
https://www.fa-mag.com/news/making-... are not seen as,taxed at the corporate level.

The Problems Of The Fund Format

Investing in a mutual or closed-end fund that in turn invests in MLPs can help investors avoid the tax filings. A fund can take care of the individual K-1 forms and pass distributions on to shareholders via a single 1099 form.

There’s a major catch, though: Tax law doesn’t allow funds to be characterized as regulated investment companies (RICs) if they have more than 25% of their portfolios in MLPs. A fund that does must undergo reclassification as a C corporation.

As such, the fund must accrue the future tax liabilities of unrealized gains in its portfolio. It deducts the amount of the accrual from its shares’ net asset value on a daily basis. According to Woodham, a fund investor usually gives up nearly 40% of the total return to the accrued tax liability. So although a fund is easier to own from an administrative standpoint, an investor trades a considerable amount of total return for administrative ease.

The result is that the funds’ returns are muted when MLPs are both surging and declining, according to Sam Lee of Severian Asset Management in Chicago, who spoke with Financial Advisor. Shareholders don’t get all the gains in up years, but also don’t get all the losses in down years. For this reason the fund format is not ideal for owning MLPs. Instead, analysts prefer exchange-traded notes (ETNs), a vehicle that doesn’t own MLP units directly but instead owns a derivative, albeit with some extra counterparty risk since a bank stands behind the ETN.

Nevertheless, for those who want to wade into the closed-end fund waters, there are some advantages. First, closed-end funds often use leverage to magnify their bets. While this can hurt during declines, it can boost returns in market surges. Unfortunately, Lee has observed that the funds don’t use the maximum leverage or borrowing power available to them when their assets have dropped in value. In other words, they tend to be highly levered when their prices peak, guaranteeing a magnified loss when prices drop, and only lightly levered after they’ve dropped, guaranteeing a muted bounce-back. On top of that, closed-end funds are just plain expensive, Lee says.
 
Saltynuts said:
I would like to buy some MLPs (royalty trusts as well), but HATE having to get all those K-1s at year end and deal with those on my tax return.

I believe if I buy closed end funds that own these, rather than get K-1s (or those royalty trust information returns), I will just get a 1099 from the closed end fund? Is that correct?

And if I get a 1099 from a closed end fund, will IB report that to me together with all my other 1099 items (such as 1099-DIV from C corps, which all show up on a single 1099-DIV per account), or will I get a separate 1099 issued to me by the closed end fund? I hope its just aggregated so if I hold say 10 closed in fundd in an account I don't have to track down separate 1099s for each of them each year for reporting purposes, its instead just all on my IB tax information statement.

Thanks!
More...

Well, have a talk with yourself and get back to us.
 
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