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1.
What will eventually happen to the distributions that royalty trusts pay their investors?
They will disappear. Resources are finite; therefore, they will run out eventually.
2.
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.
3.
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.
4.
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.
5.
For tax purposes, dividends from real estate investment trusts are allocated to _______.
All of the above. The situations for each of these returns differ.
