MLPs must earn the large majority of income from qualifying sources, primarily natural resource transportation, processing and storage. Pipelines dominate the category because their fee-based, volume-driven cash flows suit a high-distribution structure.
Unitholders receive a schedule-k-1 rather than a dividend statement, which brings pass-through income, depreciation deductions that often shelter part of the distribution, and potential state filing obligations in every state the partnership operates in.
Two traps recur. Holding MLPs inside a retirement account can create unrelated business taxable income, and the sheltered portion of distributions reduces cost basis, creating a larger taxable gain on eventual sale. See return-of-capital.
Related: schedule-k-1, return-of-capital, distribution-yield, limited-partnership, tax-advantaged-account, cost-basis-method