K-1 and Other Tax Information
Your Schedule K-1 will be available at www.taxpackagesupport.com/evolvetransition beginning in March. A hard copy will also be mailed to you in March.
Unitholders with questions concerning their Schedule K-1 should contact:
Evolve Transition Infrastructure LP
Tax Package Support
P.O. Box 799060
Dallas, TX 75379-9060
Tel (800) 577-1033
Fax (866) 554-3842
Frequently Asked Questions
Disclaimer: The following is provided for your general information and is not intended to be, nor should it be construed as, tax advice. The tax information discussed here is based on existing federal and state laws and regulations as interpreted by us. Before undertaking any tax filing, we suggest that you refer to the appropriate federal and state income tax laws or consult with your personal tax advisor.
What is a Schedule K-1?
Evolve Transition Infrastructure LP (“the Partnership”) was a publicly traded limited partnership that has not elected to be treated as a corporation and is therefore treated as a partnership for federal income tax purposes. As a partnership, we are not a federally taxable entity and incur no tax liability. Instead, all income and expenses flow through to the unitholders to be reported on each unitholder’s tax return. The Partnership is required to file a Form 1065, U.S. Return of Partnership Income, with the IRS which includes a Schedule K-1 for each unitholder reporting the unitholder’s respective tax information. You will need a Schedule K-1 to complete your tax return.
How do I get a Schedule K-1
A tax package was mailed directly to your address of record in early March. The tax package, which includes a Schedule K-1, summarizes the unitholder’s allocated share of the Partnership’s reportable tax items for the calendar year.
When do I get a Schedule K-1?
All Schedule K-1’s should be received during mid-March with the tax package mailed to your address of record provided by your broker or nominee.
What if I do not receive a Schedule K-1
If you did not receive your Schedule K-1 by mid-March, please call (800) 577-1033.
What is a unitholder?
Unitholders were treated as partners in the Partnership for federal income tax purposes.
What is the difference between a corporation and a partnership?
Generally, a corporation is subject to federal and state income taxes, but a partnership is not. All of the income, gains, losses and deductions of a partnership are passed through to the partners who are required to show their allocated share of these amounts on their income tax returns.
What is the difference between units of a partnership and shares of a stock?
A partner in a publicly traded partnership owns units of the partnership rather than shares of stock and receives cash distributions rather than dividends. Any cash distributions made by a partnership are not taxable as long as the partner’s tax basis in that partnership exceeds zero.
Is the Partnership registered as a tax shelter?
The Partnership is not registered as a tax shelter.
Can I access my Schedule K-1 electronically?
Yes, an electronic version of your tax package, including your Schedule K-1, will be available at our website (www.taxpackagesupport.com/evolvetransition) beginning in early March. Additional features available on our website include the ability to transfer information to IRS forms, download a file which can be imported into TurboTax, or compute the potential gain or loss when selling your units.
Access to our website will require your first and last name, an email address (which will become your username), and a password. Once you gain access to the website, you will be prompted to identify the account(s) you wish to access by entering the SSN or EIN of the unitholder. Unitholders will be allowed to provide access to a third party, such as an accountant or tax advisor. If you encounter any difficulties when logging in to the website, please call (800) 577-1033.
What is included in the tax package that I will receive?
In the tax package you receive, the Partnership is providing the following documents to you:
- Schedule K-1 (Form 1065)
- State Schedule
- Ownership Schedule
- Sales Schedule (if you sold units in the covered period)
Additionally, the Partner’s Instructions for Schedule K-1 (Form 1065) and a graphic guide to assist you in preparation of your individual income tax return will be available online (www.taxpackagesupport.com/evolvetransition). The tax packages and references to tax forms assume that you are an individual partner. If you, as partner, are a corporation, partnership, or other type of taxpayer, you may need additional information to complete your tax return(s).
What should I do if the information in my tax package is incorrect?
Corrections to any schedule you receive should be made directly onto the schedule and returned to the Partnership by mid-May at the following address:
Evolve Transition Infrastructure LP
Tax Package Support
P.O. Box 799060
Dallas, TX 75379-9060
Tel. (800) 577-1033
Fax (866) 554-3842
Why am I receiving a Schedule K-1 rather than a Form 1099?
A Schedule K-1 is similar to Form 1099 that corporate stockholders receive. IRS Form 1099 is used to report dividends and interest, rather than partnership information, which is reported on a Schedule K-1. While a holder of corporate stock receives a Form 1099 each year detailing required tax data, a unitholder of a partnership receives a tax reporting package including substitute Schedule K-1 and other forms to file with his or her income tax return. This tax reporting package shows a partner’s allocable share of the Partnership’s income, gains, losses, and deductions.
How does the Tax Cuts and Jobs Act signed into law by President Trump at the end of 2017 impact me as a unitholder?
Impacts of the new law were reflected beginning with the 2018 Schedule K-1. The new law generally allows a non-corporate taxpayer a deduction of 20% of the domestic qualified business income from a partnership, potentially subject to a wage limitation. Publicly traded partnership income is qualified business income and is not subject to a wage limitation for this purpose. Therefore, 20% of any non-tax deferred income of the Partnership reported on your Schedule K-1 would be allowed as a deduction for a non-corporate unitholder. Additionally, 20% of any ordinary income on the sale of your units would qualify for this deduction. Please consult your personal tax advisor for additional details.
How can I use my Schedule K-1 to determine the amount of taxable income allocated to me as a unitholder?
In general, the amount of taxable income allocated to a unitholder for the tax year can be derived using:
- Schedule K-1, Line 1: Ordinary business income (loss)
- Schedule K-1, Line 5: Interest income
- Schedule K-1, Line 13(J): Section 59(e)(2) expenditures
- Schedule K-1, Line 20(T): Depletion: Oil and Gas (See Schedule K-1 Supplemental Information, 20T1 – Sustained – Assumed Allowable Depletion)
You should contact your personal tax advisor for additional details on determining your taxable income using the Schedule K-1 and other tax information you receive in your tax package.
What if the income and deductions from the Partnership on my Schedule K-1 result in a net loss?
A net loss from the Partnership is considered a “passive loss” under the IRS Tax Code. If you have a net loss for the tax year, you cannot deduct it from your taxable income. However, you can carry it forward and use it to reduce any taxable income from the Partnership in future tax years. If any of the loss remains when you sell your units, you can deduct it from your other income in that year.
Can I use the income allocated to offset some of my passive losses from other investments?
No. Generally, passive income from a partnership may only be offset by passive losses from the same partnership, and passive losses from the partnership may not be offset against passive income from another investment. However, if the result of netting a partnership’s passive income and loss is net income, it is then considered portfolio income, and other investment expenses may be deducted from it.
When do cash distributions become taxable?
You may need to pay tax on any potential cash distributions you receive from the Partnership:
- If your adjusted basis in the units reaches zero: Your original basis is the price you paid for the Partnership units. It is adjusted downwards with cash distributions from us and with each allocation of deductions, and upwards with each allocation of income. (Don’t worry about keeping track of all this–the Partnership will do it for you making certain assumptions about your treatment of deductions and report this to you on Line L of Schedule K-1.)
- If you sell your units at a gain: Because cash distributions decrease your basis, they increase the amount of taxable gain (which equals your sales price minus basis in the Partnership) on the sale. Some of your gain will be taxed at the lower capital gains rate, but the portion of the gain that results from deductions (such as depreciation that lowers your basis) will be taxed as ordinary income.
I purchased units in December. Why does my Schedule K-1 reflect no allocations of income or deductions?
Our recognition rule for allocating income and deductions is “last day/next month”, which means that if a unitholder holds a unit as of the beginning of the 1st day of the month they will receive income or loss allocations for that month. Therefore, unitholders who purchase in December will not receive allocations until the following January. Likewise, any allocation of income and deductions from a December purchase will be reflected on your following year Schedule K-1.
Why is the amount of cash I received different than the amount I have to report on my individual income tax return?
When we make cash distributions, the cash you receive is a tax-deferred return of capital and represents your share of the Partnership’s available cash. The amount you are required to include in your individual income tax is your share of the Partnership’s income and related items, allocated based on the number of units you owned during the year and reported on your Schedule K-1. These amounts differ due to changes in cash flow and depreciation (which is a non-cash expense).
How can I calculate my tax shield? Why is it different than the amount stated in the prospectus?
In a year in which we make cash distributions, you may calculate your tax shield by dividing your cash distributions by your taxable income allocation. The actual tax shield will be different than the amount listed in the prospectus because the prospectus amount was an estimate.
How is my basis affected by cash distributions and partnership net income?
Any cash distributions you receive from us are a tax-deferred return of capital and decrease your basis in the Partnership. At year end, your basis in the Partnership is increased or decreased by your share of the Partnership’s taxable income or loss allocated to you on your Schedule K-1.
Do partners receive dividends?
No, partners do not receive dividends. Any cash payment that a partner receives from the partnership is referred to as a “distribution”. Whereas a dividend represents a return on capital, a distribution is considered a return of capital and is generally not taxable in the year received if the partner’s tax basis remains above zero. However, a distribution will reduce your tax basis in the Partnership and, therefore, impact the amount of your gain or loss in the year in which you sell your units.
What states do I have to file tax returns in as a result of owning Evolve Transition Infrastructure?
In addition to the filing requirements of the state in which you live, you may be required to file a non-resident tax return in the states in which the Partnership operates. The Partnership is registered to do business in three states: Oklahoma, Texas and Louisiana. The Partnership has informational filing requirements in Georgia, Indiana, Missouri, New Jersey, New York, Oregon, Pennsylvania, and West Virginia due to resident partner filing requirements in these states. It is the responsibility of each common unitholder to investigate the legal and tax consequences, under the laws of pertinent states and localities, of his/her investment in the Partnership.
What is UBTI?
Unrelated Business Taxable Income, or UBTI, is income that is taxable to an otherwise tax-exempt institution or account. UBTI may be a factor for individual investors that hold MLP units in nontaxable accounts such as IRAs, pension or profit sharing plans. If an individual investor holds units in an IRA, pension or profit sharing plan, the unitholders’ share of our income may be considered UBTI. However, it will not be taxed as long as the amount of this income and all other sources of UBTI does not exceed $1,000 in any year. UBTI, as disclosed on the Schedule K-1, does not include intangible drilling costs or depletion deductions. We suggest that you refer to the appropriate federal and state income tax laws or consult with your personal tax advisor as to the computation of your UBTI.
If my IRA’s (or other exempt entity’s) investment in the Partnership does generate UBTI’s exceeding $1,000, do I have to pay the tax?
If your IRA’s (or other exempt entity) investment in the Partnership does generate UBTI exceeding $1,000, please note that the IRA (or other exempt entity) is the unitholder and therefore is the taxpayer. Any tax is reported on IRS Form 990-T which is filed by the custodian of the IRA (or other tax exempt entity) and is paid out of the IRA (or other tax exempt entity’s) funds. We suggest that you refer to the appropriate federal and state income tax laws or consult with your personal tax advisor.
Can I invest in the Partnership through a mutual fund?
You can, but your choices may be limited, particularly for conventional mutual funds operating as Regulated Investment Companies (RICs) under the tax code. The American Jobs Creation Act of 2004 made it easier for mutual funds to invest in the Partnership by adding them to the list of qualifying sources of income for RICs under the tax code, as long as partnerships do not constitute more than 25% of the RIC’s assets. However, not many mutual funds have availed themselves of this opportunity, primarily because of concerns about timing issues in reporting taxable income.
How am I taxed on my units if I invest through a mutual fund?
The mutual fund will own the Partnership units and becomes the limited partner. Like any partner, the mutual fund is allocated a share of the Partnership’s income, is responsible for paying any taxes owed on that income, and receives cash distributions when made by the Partnership. As an investor in the mutual fund, you will receive your share of the Partnership’s income in the form of a dividend paid to you by the mutual fund. Note that for tax-exempt investors, this addresses the UBTI complexity, as dividends are not subject to UBTI.
Do my units have a basis step-up at death like corporate stock?
Yes. The basis of the Partnership units received by inheritance will be the market value of the units on the date of death.
Where can I get additional information on partnerships and the tax treatment for partnerships?
The Energy Infrastructure Council is a trade association representing companies that develop and operate energy infrastructure, including the publicly traded partnerships commonly known as master limited partnerships (MLPs). Following is their website, which contains basic information about MLPs and the tax treatment associated with them: www.eic.energy.