dumbstruck wrote:
- quote -

ETNs, exchange-traded notes, are relying on a tax opinion that may not
hold water. Googling will turn up discussions of this.

One concept you hit on is return of capital, where a fund distribution
is regarded as not being from income, usually because of something like
depreciation or depletion. ROC is not taxable and instead requires a
basis adjustment (which is a pain in the neck, on a lot by lot basis).
It can come up a bunch of different ways, some examples:

* REITs/REIT funds - many REIT dividends are partially ROC
* royalty trusts and master limited partnerships - and when you sell
them it's ordinary income not LTCG, also there's the UBTI issue if you
want to hold in an IRA
* a mutual fund that messes up its accounting and post-12/31 realizes
that distributions in the prior year were in excess of income earned, so
it's return of capital. Unusual but it happens.

Tax exempt bond funds that aren't single-state usually require manual
adjustments on the state return, taxing the income earned from out of
state bonds.

Quite a few of the leveraged ETFs use derivatives that lead to messy tax
accounting that I will not even speak the code section of.

ETFs that have a lot of creation/redemption can fail to qualify for the
"QDI" rate, which has holding period requirements (for the stock paying
the dividend). IIRC the year this happened to some of the iShares it
wasn't a problem with traditional index funds tied to the same indices.

Add "accountant time" or "tax reading" to the cost of owning any of these.

-Tad

What types of etf's or mutual funds might have unexpected
complications in how they are taxed, besides the usual cap gain and
dividend distributions? My goal is to avoid things likely to need
special handling or particularly late assessment or reassesment of
taxable returns. I had to help a relative with consequences of a
partnership, and the yearly process seemed worse than having my
eyeballs slowly pulled out with corkscrews.

One possible example is the bullion etf's. I hear GLD and maybe SLV
should be treated under higher "collectables" tax rates rather than
cap gain, but maybe not ticker CEF.

Another is DBC which includes gold/oil commodity (futures?). An
article warned this is treated funny in tax due to being structured
like a partnership. Would DBA (agric.) be the same, or is it back to a
bullion issue?

What about closed end funds in general? At one point I heard they
sometimes do that trick where some gains are considered return of
original investment or some such thing that was excruciating to handle
in partnership-land (usually released ridiculously close to tax
deadline).

Thank you for treating this in a preliminary, brainstorming way, and
not wasting platitudes about consulting lawyers or prospectus. A 100%
wrong answer is better than no answer because it may include clues to
followup on. A 80% wrong guess would be wonderful with that juicy 20%
to start building on. Prissy and defensive correctness has destroyed
prospectus's, which used to be frank and specific but now are
meaningless lists of open ended boilerplate caveats. Let's respect
folks to properly manage epistemology - they know to what degree they
know and what they don't know, regardless of whether good or bad
advice is thrown at them.