Certain radio stations in our area have been running advertisements lately for something called “U.S. Freedom Checks.” According to the claims, people all over the country are able to collect these checks in varying amounts. These checks are apparently mandated by the U.S. Government. It sounds as easy as calling a certain phone number. Easy money, right? What could possibly go wrong?
Since it seemed so easy, I went looking for my individual “Freedom Check.” I didn’t seem to qualify for a “Freedom Check,” but I did learn a few things. So, I am sharing what I discovered.
I found that so-called “Freedom Checks” are indeed mandated by the U.S. Government, but they only apply to Publicly Traded Partnerships (PLPs). Most Americans know about partnerships, as many professionals form their businesses using that organizational method. Generally, partnerships are privately-held, and taxes “flow-through” to the partners, rather than being paid directly by the partnership entity.
Similar to MLPs (Master LImited Partnerships), but less prominent, are publicly-traded entities called “Publicly Traded Partnerships,” or PLPs. According to the U.S. Tax Code, PLPs are required to pay out to shareholders 90% of the entity’s income trust from “qualifying sources.” This simply refers to the profit they make from actual business transactions. When properly done, the PLP pays no income tax, as the taxation “flows through” to the shareholders. Ipso facto, they send government-mandated checks.
What is a “Freedom Check?” Who gets a “Freedom Check?” How large will the “Freedom Check” be? It seems that they are only issued to the shareholders in the proportion of their individual holdings. That’s right – it is a dividend under another name. The name “Freedom Check” is, as far as I can tell, a marketing gimmick. We would simply say that a dividend check will be sent to all shareholders in accordance with the Tax Code.
In the energy arena, many Master Limited Partnerships take on Limited Partners to generate money for operating expenses. Investors looking for an income stream sometimes buy shares in these MLPs. No MLP will ever send a dividend check (the so-called “Freedom Check”) to a non-shareholder
Are you feeling mislead yet? Me, too. Some things never change. Don’t spend your Freedom Check all in one place.
Van Wie Financial is fee-only. For a reason.