Tax Law

Master Limited Partnerships: Paying Other People's Taxes

...[B]uried deep in the fine print of the Federal Register is a regulatory rule that... forces you to pay the personal income taxes of others. [The rule] applies -- for now -- only to owners of rate-regulated pipelines organized as master limited partnerships, or MLPs.

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While you may not have heard about MLPs, readers of Barron's and other publications for savvy investors have. In approving cover stories, Barron's and other investment journals tout MLPs as a way for investors to earn returns of 8 percent or more each year while paying little or no income tax.

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All that is needed to expand this tax shifting is a change in federal law -- a change so minor it does not even require a sentence to be added to section 7704(d)(1)(E), a list of industries that can be owned through publicly traded partnerships without being subject to the corporate income tax.

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Taxes should not be hidden, as David Ricardo and Adam Smith taught. They should also not be shifted from those who gain to those who are captive customers of monopolies. But the trend in America under both parties is away from markets and toward a subtle expansion of corporate socialism, under which profits are concentrated through government action and losses are socialized through bailouts. Now we have income tax burdens forcibly shifted from the wealthy few to the many through regulation.

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View TaxAnalysts' David Cay Johnston's opinon in its entirety on TAX.com.

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