Enbridge Energy anticipates that the Schedule K-1 Investor Tax Packages, which provide investors with the information necessary to complete their income tax returns, will be delivered by mail by the end of February each year. See www.taxpackagesupport.com/enbridge.
Master Limited Partnerships (MLPs) like Enbridge Energy are treated as partnerships for federal income tax purposes. Accordingly, they do not, as an entity, pay federal income taxes. This allows for a higher potential cash flow payout to unitholders. Unitholders are required to report their share of MLPs’ income, gains, losses and deductions on their federal income tax returns even if cash distributions are not made. As a consequence, a unitholder's share of taxable income of an MLP, and possibly the income tax payable by the unitholder with respect to that income, may exceed the cash actually distributed to a unitholder. This differs from corporations, which are subject to "double taxation", whereby the corporation's earnings are taxed to the corporation and then corporate distributions are further subject to taxation at the shareholder level.
A unitholder's initial tax basis for his/her investment in the MLP will generally be the amount paid for the units. Cash distributions from MLPs reduce a unitholder's tax basis in the investment and are not taxable to a unitholder as long as the unitholder's tax basis in the MLP exceeds zero. Distributions are taxable to the extent they exceed a unitholder's tax basis in the investment. A unitholder's share of the MLP's taxable income is taxable to the unitholder and increases the unitholder's tax basis in the investment. This taxable income amount is reported to the unitholder in the individualized Schedule K-1 that is mailed annually to each unitholder in late February. Unitholders may also be subject to income tax reporting requirements in states in which the MLP has operations.
In short, the unitholder must generally pay tax on his\her share of the MLP's taxable income, not on the cash distributions. Since MLPs generally pay more cash distributions than the amount of taxable income allocated, the tax basis of the unitholder is decreased by the difference between total cash received and taxable income reported. Cash distributions will become taxable if the unitholder's cost basis is reduced to zero. The term "tax deferred distribution" refers to the portion of the cash distribution that exceeds the amount of taxable income allocated to the unitholder.
Income tax information contained on this website is introductory and non-specific in nature. It is not intended to replace official IRS publications or to substitute for the advice of a professional tax or financial advisor. We recommend you seek the advice of qualified professionals.
Schedule K-1 Information
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