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By HELEN HUNTLEY
© St. Petersburg Times, published April 8, 2001
Longing to shed limited partnerships? You have options
Q. My wife and I own units of four limited partnerships, only one of which still pays anything. Getting any information about these investments is worse than having your teeth pulled. For the past few years, they have lagged very far behind providing timely Schedule K-1s we need to file our income tax return. Last year, that delayed a significant tax refund until August.
How can we shed these partnerships? The principals of the company we bought them from have offered to buy them back for "nominal consideration." They say we will have to report taxable income on the sale. Do you know any experts who can counter these financial reprobates? Do you know any charitable organization that would accept these as donations? Are there any attorneys who would litigate them on a contingency basis?
A. You've asked a lot of questions. Most brokerage firms are not interested in buying and selling limited partnerships, but there are a few companies that still help people dispose of these investments.
"We auction 10 to 15 a week, and half of those sell," said Jason Baer, marketing coordinator for NAPEX Inc., a Tampa company that has been auctioning partnerships since 1984. He said most sellers are estates, while the buyers range from individuals to institutions such as retirement plans.
Most sales are at very steep discounts from the original purchase price, and, naturally, buyers are most interested in partnerships that pay dividends. If a sale occurs, the seller pays NAPEX a fee, which starts at $100 plus 3 percent of the sale price. Baer said investors can set a minimum price they are willing to accept, but some are so eager to unload their partnerships they will take anything they can get, even if it is less than the fee they have to pay.
NAPEX will tell you its most recent auction price for your partnerships. For more information, check the Web site (http://www.napex.com) or call (800) 356-2739.
Some units cannot be sold because the partnership will not permit transfers of ownership. Even when transfers are permitted, they take time. By design, partnerships are illiquid investments.
"Trades usually take two to 21/2 months to get completed," Baer said. "We had one that actually took 2 1/2 years to get finished. If people had known what they were getting into, I don't think they would have bought these."
If you are interested in giving your investment away, your best bet is to contact the partnerships directly and ask them if any charities have accepted their units, Baer said. He suggests taking the nice-guy approach.
"If you sweet talk them a little bit, they're usually more generous with information," he said.
You may have a taxable gain on the sale. Because limited partnerships are complex investments, I recommend consulting a tax professional when you dispose of your interest.
The problems you mention have been around for more than a decade and there have been many, many lawsuits. You most likely have waited too long to file a claim, but if you think you might have a case, talk it over with a lawyer who specializes in representing investors.
Q. I know that reinvested dividends become part of your tax basis for a stock or mutual fund. My question is this: Can you add to the basis the income tax you paid on those reinvested dividends?
A. No. Think of it this way: Your tax basis represents your after-tax investment. Your original purchase was with after-tax money. Your reinvested dividends are after-tax money. When you sell this investment, you will not pay capital gains tax on the basis because it already has been taxed.
If you have not yet discovered About.com, this is a good time to take a look at the financial planning resources available on the topic of personal finance. A direct link (http://financialplan.about.com/money) leads to a menu of 30 subjects, from divorce and debt to small businesses and Social Security.
- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to email@example.com by e-mail.