Tax Features
Fund Tax Features
As a corporation, TYG allows both institutions and retirement accounts to join individual stockholders as MLP investors. TYG provides one Form 1099 per stockholder at the end of the year, instead of multiple K-1s and potential state tax filings for individual partnership investments.
TYG is designed to provide an efficient alternative to investing directly in MLPs and an attractive distribution, with a historically low correlation to returns on stocks and bonds.
Unlike most investment companies, TYG is not treated as a regulated investment company under the U.S. Internal Revenue Code of 1986, and is therefore obligated to pay federal and applicable state corporate taxes on its taxable income.
Although MLPs may generate taxable income, TYG expects the MLPs to pay cash distributions in excess of such taxable income. Similarly, TYG expects to distribute cash in excess of its taxable income to stockholders and intends to distribute substantially all of its distributable cash flow (generally, cash from operations less certain operating expenses and reserves).
Stockholder Tax Features
TYG stockholders hold stock of a corporation. Shares of stock differ substantially from partnership interests for federal income tax purposes.
Stockholders recognize income only if TYG pays distributions from current or accumulated earnings and profits allocable to the particular shares held by a stockholder. Earnings and profits are treated generally, for federal income tax purposes, as first being used to pay distributions on preferred stock, if any, and then to the extent remaining, if any, to pay distributions on common stock. Such distributions will be taxable to a stockholder in the current period as dividend income. Distributions that exceed TYG's current or accumulated earnings and profits constitute a tax-deferred return of capital to the extent of a stockholder's basis in its stock and then as capital gain.
Dividend income will be treated as "qualified dividend income" for federal income tax purposes, eligible for reduced capital gain tax rates if the stockholder meets the holding period requirements. Currently, the maximum rate for qualified dividends is 15%, which is set to expire Dec. 31, 2012. TYG expects that a significant portion of distributions to stockholders will constitute qualified dividend income.
There is no assurance that TYG will make regular distributions or that the company's expectation regarding the tax character of its distributions will be realized.
Upon the sale of stock, a stockholder generally will recognize capital gain or loss measured by the difference between the sale proceeds received by the stockholder and the stockholder's federal income tax basis in its stock sold, as adjusted to reflect return(s) of capital. Generally, such capital gain or loss will be long-term capital gain or loss if the stock were held as a capital asset for more than one year.