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1.
Why have so many energy firms reorganized as master limited partnerships?
To avoid double taxation of earnings. There is no counterpart to the corporate income tax. Owners of a partnership are taxed only once: when they receive distributions.
2.
As an investor in a royalty trust, you will generally have to pay state income taxes on your royalties.
True. You are liable for income taxes in the states in which the trust generates its royalties--and that could even be multiple states.
3.
Which of the following is not an advantage of royalty trusts?
Stable cash flows. Cash flows from royalty trusts are not predictable. Royalty trusts are affected by swings in production levels and commodity prices.
4.
Which of the following is true regarding the tax treatment of master limited partnerships?
The owner might have to file tax returns in the states where the partnership operates. MLP unitholders pay regular income tax annually on their share of the partnership's net income.
5.
Real estate investment trusts specialize by _______.
Type of property. For example, they may specialize in offices, malls, hotels, or many other property types.
