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Andy4712
Andy4712, Tax Attorney
Category: Capital Gains and Losses
Satisfied Customers: 539
Experience:  Tax attorney experience in dealing with business law.
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I own a master limited partnership (stock symbol BBEP) that

Customer Question

I own a master limited partnership (stock symbol BBEP) that has currently filed for bankruptcy. The worry is (as with many of these MLPs that are going out of business) that I will have to pay cancellation of debt income if some or all of their debt gets cancelled. I have read many articles on line that support this claim and others that say the limited partners are not liable because it is non recourse debt. They say that I would only be reliable for what I put in (i.e. my investment). There does not seem to be anyone that can agree.
Submitted: 6 months ago.
Category: Capital Gains and Losses
Expert:  Andy4712 replied 6 months ago.

http://www.bankruptcylawnetwork.com/in-bankruptcy-dont-fear-the-1099-c/

Customer: replied 6 months ago.
This article still leaves me a bit unsure. It does say that there is no CODI in bankruptcy but I think they are referring to when the consumer files for bankruptcy. In my situation the master limited partnership has entered bankruptcy. If the judge cancels part of their debt I am still unsure if this will get passed to me as phantom income. Of course I could file bankruptcy and then wouldn't have to pay. Please clarify maybe with references that apply particulary to MLPs.
Customer: replied 6 months ago.
In addition a different MLP called Linn Energy created a corporation and allowed share holders to swap there MLP shares for shares in the new corporation all to avoid passing CODI to the share holders. It makes me wonder why they would do this if all the share holders had to do was file a firm 1099c
Expert:  Andy4712 replied 6 months ago.

http://www.bidnessetc.com/65595-linn-energy-llc-set-file-bankruptcy/

Expert:  Andy4712 replied 6 months ago.

http://www.wsj.com/articles/linn-energy-looks-to-ease-tax-hit-on-investors-1457554295

It looks like Linn Energy used Kirkland & Ellis LLP and Lazard Ltd. to help fix its capital structure. Maybe you should contact them.

Expert:  Andy4712 replied 6 months ago.

Maybe the price of oil will go back up. I am surprised it has stayed so low for this long.

Expert:  Andy4712 replied 6 months ago.

http://www.law360.com/articles/632158/sabine-oil-gas-hires-kirkland-as-restructuring-counsel

Expert:  Andy4712 replied 6 months ago.

http://www.kirkland.com/sitecontent.cfm?contentid=218&itemid=659&displaymore=1

Expert:  Andy4712 replied 6 months ago.

https://www.lazard.com/businesses/financial-advisory/restructuring/

Expert:  Andy4712 replied 6 months ago.

http://www.srr.com/article/transaction-trends-master-limited-partnerships

What state is your MLP formed in?

Expert:  Andy4712 replied 6 months ago.

https://www.lw.com/MLP-Portal/101

Expert:  Andy4712 replied 6 months ago.

http://blog.lawkick.com/how-convert-llc-c-corporation-3-steps/

Expert:  Andy4712 replied 6 months ago.

http://ir.energytransfer.com/phoenix.zhtml?c=106094&p=irol-newsArticle&ID=2061168

Customer: replied 6 months ago.
It is headquartered in California
Customer: replied 6 months ago.
Sorry for the late response. I have had no internet for the last two days. I guess this is a tough question.
Expert:  Andy4712 replied 6 months ago.

http://www.nolo.com/legal-encyclopedia/converting-llc-corporation-s-corporation-california.html

Expert:  Andy4712 replied 6 months ago.

Is it a California MLP?

Customer: replied 6 months ago.
it is a California MLP. Bbep is the stock symbol
Expert:  Andy4712 replied 6 months ago.

Who set it up for you? Maybe you can go back them and get help to merge or convert it to a C Corp.

Customer: replied 6 months ago.
I think you misunderstood my question. I do not own the MLP I own shares of the company
Customer: replied 6 months ago.
I am debating whether I should sell my shares I don't want to because they could pull out of bankruptcy and be ok however if some of their debt gets cancelled I might BE liable for CODI.
Expert:  Andy4712 replied 6 months ago.

http://www.nytimes.com/2016/02/21/business/oil-price-drop-may-add-to-tax-bills-for-popular-energy-investments.html?_r=0

Expert:  Andy4712 replied 6 months ago.

It looks like MLPs are reorganizing. If you don't want to deal with cancellation of debt income, then you could just sell it. It depends upon your situation.

Customer: replied 6 months ago.
I don't want to deal with it but I also don't want to sell my shares since I've been with the company all the way down I'd rather keep my shares and see if the share price comes back up the issue is cancellation of debt high risk to lose not only all the shares in the company but also be charged a huge tax bill if Debt is cancelled. so what I'm really asking is is cancellation of debt or Phantom income really a problem for investors in an MLP?
Expert:  Andy4712 replied 6 months ago.

Here is an article:

http://www.oilandgasinvestor.com/blog/bankruptcy-and-cancellation-debt-840501

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