There are five different ways to invest in a MLP; each investment vehicle has different ramifications. There is no perfect way to invest in a MLP; the type of investor and the desire for current income will steer the advisor toward the best MLP asset and vehicle.
 Individual MLP Units
According to 2013 data from the National Association of Publicly Traded Partnerships, there are > 100 energy-related MLPs with a cumulative stock market value in excess of $400 billion. If your client owns a MLP directly, he/she will receive an annual K-1; if a tax preparer is used, this could mean an additional annual fee of $100-$200. This amount could easily double if the MLP unit is sold since multiple-state filings may be required. According to the WSJ (August 2013), well-regarded companies that offer individual MLPs include: Enterprise Products, Magellan Midstream Partners, and Plains All American Pipeline.
Having an individual MLP in a retirement account such as a Roth or pension plan is likely to be troublesome. Any given MLP is very likely to have > $1,000 of unrelated business taxable income each year. This creates “taxable income” within the retirement account, requiring complex record keeping.
 MLP I-Units
By opting out of current income, investors can gain some tremendous tax benefits. Instead of distributing cash, MLP I-Units distribute additional MLP shares. The shares are not taxed until the investor sells them; shares held for > one year qualify for long-term gain status. Tax reporting is simple: taxpayer receives a 1099 when he/she sells shares; there is no K-1. Two companies that offer MLP I-Units are Kinder Morgan Energy Partners and En bridge Energy Partners.
 MLP Funds Taxed as C-Corporations
Net income generated by the MLP is taxed as a corporation, with rates up to 35% of net income. Thus, investors receive distributions that have already been subject to a corporate tax. MLP fund investors are then taxed again when the distribution is received. On a positive note, there is no “unrelated business taxable income,” meaning this investment can be easily held in a retirement account. Instead of a K-1, MLP fund investors receive a 1099 from the ETF, mutual fund, or closed-end fund.
Fund examples include ALPS/Alerian MLP Infrastructure Index A, a mutual fund, and First Trust MLP and Energy Income Fund, a closed-end fund. Advisors need to be careful with these investment vehicles because their deferred taxes can be substantial; Alerian has a management fee and deferred taxes that total 4.8% while First Trust has a 1.37% annual fund charge plus a deferred tax expense of almost 16%.
 MLP Funds Not Taxed as C-Corporations
Unlike the above, these types of MLPs are taxed just like traditional mutual funds. A 1099 is generated each year. There is no corporate tax; investors are taxed just like an ETF, mutual fund, or CEF investor. In order to get this tax-favored status, the MLP fund cannot have > 25% of its assets in direct MLP holdings.
Some funds try and get around this 25% limitation by having ownership interests in subsidiaries that own MLPs (note: the IRS is beginning to challenge such strategies but the outcome is uncertain). Salient MLP & Energy Infrastructure Fund, Tortoise MLP & Pipeline Investor, and Famco MLP & Energy Income are examples of three funds that are taxed just like mutual funds and ETFs.
 MLP ETNs
An exchange-traded note (ETN) is a debt instrument issued by a sponsor such as J.P. Morgan or Credit Suisse (or the non-defunct Lehman Brothers). ETN investors should have two major concerns with any ETN:  creditworthiness of the issuer (value of the underlying assets mean nothing if the issuer goes out of business), and  tax inefficiency. Since an ETN is a debt instrument, all payouts are taxed as ordinary income, with federal income tax rates as high as 43.4% (plus state income taxes).
MLP ETNs issue 1099s and are not a problem to own in a retirement account. Unlike other forms of MLP ownership, credit risk of the sponsor (issuer) is a paramount concern. These types of ETNS are considered expensive to buy or sell.
MLP Tax Considerations
MLP investors are taxed differently, depending on the investment vehicle used. Some forms of ownership are extremely tax efficient (i.e., large tax deferral and long-term capital gains) and other structures are very tax inefficient (i.e., depreciation recapture and ordinary income taxes). In general, the longer the holding period, the better the tax benefits.