Received mysterious K-1 form, seeking answers

Question

I was formerly a private equity trader . I got out of the business in 2002. In 2005 I lost my wife to breast cancer she was 45 . I was left with three young children. I decided to go back to school and received my degree in Physical Education and became a teacher in a New York City High School.

This past week I opened my mail from Sunoco Logistics Partnership (SXL). It was a K-1 tax form showing I made $6,200 and another $1,900 in dividends this year.

I find this very confusing because I have not received any monthly statements and have not received any since i bought 3,300 shares of the IPO in the year 2002.

I called Sunoco and asked them to send me all of my K-1 forms since 2002 to which they agreed. I am awaiting their arrival.

I am hoping someone can help or advise me with this problem.

I made this trade with Smith Barney at the time of the IPO. That company is now called CITI Global Fincancial. My dilemma is how I go about finding out if I am legitimate share holder in the company or is this all just one big mistake? Maybe there is a transfer agent who can track down the stock certificate for me?

Any suggestion or direction or help in this matter would be greatly appreciated.

Answer 1

You should contact the company and the broker about the ownership. Do you remember ever selling your position? When you look back at your tax returns/1099-B forms - can you identify the sale? It should have been reported to you, and you should have reported it to the IRS. If not - then you're probably still the owner.

As to K-1 - the income reported doesn't have to be distributed to you. Partnership is a pass-through entity, and cannot "accumulate" earnings for tax purposes, everything is deemed distributed. If, however, it is not actually distributed - you're still taxed on the income, but it is added to your basis in the partnership and you get the tax "back" when you sell your position. However, you pay income tax on the income based on the kind of the income, and on the sale - at capital gains rates. So the amounts added to your position will reduce your capital gains tax, but may be taxed at ordinary rates.

Get a professional advice on the issue and what to do next, talk to a EA/CPA licensed in New York.

Answer 2

SXL is a Master Limited Partnership so all of the income is pass-through. Your equity purchase entitles you to a fraction of the 66% of the company that is not owned by Energy Transfer Partners. You should have been receiving the K-1s from SXL from the time that you bought the shares.

Without knowing your specific situation, you will likely have to amend your returns for at most 6 years (if the omitted amount of gross income exceeds 25% of your gross income originally stated as littleadv has graciously pointed out in the comments) and include Schedule E to report the additional income (you'll also be able to deduct any depreciation, losses etc. that are passed through the entity on that form, so that will offset some of the gains). As littleadv has recommended, speak with a tax professional (CPA/EA or attorney) before you take any further steps, as everyone's situation is a bit different.

This Forbes article has a nice overview of the MLP. There's a click-through to get to it, but it's not paywalled.