Does EPD Issue a K-1 or a 1099 Tax Form?
EPD's tax reporting differs from typical stocks. Understand why its MLP structure results in a Schedule K-1 and how this affects your tax obligations.
Investors in Enterprise Products Partners (EPD) receive a Schedule K-1 tax form, not a Form 1099-DIV. This is because EPD is organized as a Master Limited Partnership (MLP), a business structure with different tax reporting requirements than a traditional corporation. Understanding this distinction is important for investors needing to properly file their annual income taxes.
Understanding the EPD Schedule K-1
Because EPD is a Master Limited Partnership, its investors are legally considered partners, not shareholders. This structure allows the partnership to avoid corporate income tax by “passing through” its financial results directly to unitholders, preventing the “double taxation” that can occur with corporate profits. Each partner is responsible for reporting the figures from their K-1 on their personal tax return.
The IRS requires this information to be reported using a Schedule K-1. This form details the investor’s specific share of the partnership’s income, deductions, credits, and other tax-related items for the year. It is different from the more common Form 1099-DIV that corporations issue for dividend payments.
A 1099-DIV reports distributions of a corporation’s after-tax profits. In contrast, the distributions from an MLP like EPD are not classified as dividends. Instead, they are treated as a return of capital, which has distinct consequences for the investor’s tax situation.
Key Tax Implications of an EPD Investment
A consequence of the MLP structure involves the investor’s cost basis. The cash distributions paid by EPD are considered a “return of capital,” not taxable income in the year they are received. Instead, these distributions reduce the investor’s adjusted cost basis in their EPD units. This is used for calculating the capital gain or loss that must be recognized when the units are eventually sold.
Another consideration is Unrelated Business Taxable Income (UBTI). If EPD units are held within a tax-advantaged retirement account, such as an IRA, the income passed through on the K-1 could generate UBTI. If an IRA’s total UBTI from all sources exceeds a threshold of $1,000, the IRA itself may owe taxes, which requires filing Form 990-T.
The nature of EPD’s business, with operations across numerous states, can also create state tax filing obligations. Unitholders may be required to file income tax returns in states where the partnership earns income, even if the investor does not reside in those states. The K-1 package provides information regarding the investor’s share of income for each state.
How to Get Your EPD Tax Package
Enterprise Products Partners provides its tax packages, which include the Schedule K-1, through a dedicated third-party service. Unitholders can access their tax documents online via the Tax Package Support website at www.taxpackagesupport.com/enterprise.
The partnership makes the current year’s tax packages available online near the end of February. For investors who require physical documents, EPD begins mailing the paper tax packages around the same time, with the process usually completed by the first week of March.
Should investors have questions or need assistance with their documents, they can contact Tax Package Support directly. A toll-free number, (800) 599-9985, is available for unitholders on weekdays during business hours.