The tax treatment of the AMLP ETF is unusual because the fund is organized as a C-corporation rather than a Regulated Investment Company. That means AMLP pays federal and state corporate income tax on its earnings before any money reaches you, and then you pay tax again on the distributions and any gain when you sell. In exchange, you get a simple Form 1099-DIV instead of the Schedule K-1 that direct MLP ownership requires, and you can hold the fund in an IRA without triggering unrelated business taxable income.
Why AMLP Is a C-Corporation
Federal tax law caps how much of a Regulated Investment Company’s assets can sit in publicly traded partnerships. Under 26 U.S.C. ยง 851, a fund seeking RIC pass-through treatment can hold no more than 25% of its total assets in publicly traded partnerships.1Office of the Law Revision Counsel. 26 US Code 851 – Definition of Regulated Investment Company AMLP is built to give concentrated exposure to midstream energy MLPs, so it exceeds that ceiling by design.
The workaround is to organize the fund as a C-corporation. AMLP pays corporate income tax on its earnings just like any publicly traded company, which lets it hold as much of its portfolio in MLPs as its strategy calls for. That corporate shell is the source of every other tax quirk the fund carries.
Fund-Level Tax and the Drag on NAV
AMLP owes federal income tax at the current 21% corporate rate on its net income and realized gains, plus state corporate taxes on top.2ALPS Funds. Alerian MLP ETF Those taxes are paid before any distributions flow out, so the cash you receive has already been taxed once inside the fund.
The larger effect is the deferred tax liability. When the underlying MLP positions appreciate, AMLP must accrue a reserve for the tax it would owe if it sold them. That reserve is subtracted from total assets when the fund calculates net asset value per share. During strong rallies, the share price lags the underlying index because the deferred tax reserve grows alongside the gains. During selloffs the effect partially reverses. This is a structural feature of holding MLPs inside a taxable corporation, not something the manager can trade away.
AMLP’s total operating expense ratio is 1.01% as of early 2026, which includes a 0.84% management fee and 0.17% in income tax expense.2ALPS Funds. Alerian MLP ETF The income tax expense component moves year to year based on realized gains and partnership income, and the deferred tax accrual sits outside the expense ratio while still weighing on performance.
What Shows Up on Your 1099-DIV
Direct MLP owners get a Schedule K-1 each year reporting their share of partnership income, deductions, and credits. AMLP shareholders get a standard Form 1099-DIV, the same document any stock or bond fund produces. That single simplification is the reason many investors accept the fund-level tax drag.
The tax character of AMLP’s distributions moves around year to year based on the fund’s income, gains, depreciation, and overall position. Recently, most of each quarterly distribution has been classified as qualified dividend income, with a smaller portion treated as return of capital. For the twelve months ended March 31, 2026, roughly 5% of the total distribution was return of capital and the rest was qualified dividends.2ALPS Funds. Alerian MLP ETF The classifications published at the time of each distribution are preliminary; the final tax character is set in early the following year.
The two categories are taxed very differently. Qualified dividends are taxed at the preferential long-term capital gains rates of 0%, 15%, or 20% depending on your taxable income.3Internal Revenue Service. Topic No 409, Capital Gains and Losses Return of capital distributions are not taxed in the year you receive them. They reduce your cost basis instead, which increases your taxable gain when you eventually sell.
How Return of Capital Adjusts Your Basis
Every dollar of a distribution classified as return of capital lowers your basis in the fund. Buy shares at $40, receive $0.50 per share in return of capital over the year, and your adjusted basis becomes $39.50. The IRS treats return of capital as the fund returning a piece of your original investment rather than paying you earnings.4Internal Revenue Service. Topic No 404, Dividends and Other Corporate Distributions
If your basis ever reaches zero, further return of capital distributions are taxed as capital gains in the year received.4Internal Revenue Service. Topic No 404, Dividends and Other Corporate Distributions With AMLP’s recent mix running around 95% qualified dividends, most shareholders are a very long way from that outcome. The basis adjustment still accumulates, and ignoring it means underreporting your gain when you sell. Most brokerages track the adjusted figure automatically and report it on your Form 1099-B.
Taxes When You Sell AMLP
Your taxable gain or loss on a sale equals the sale price minus your adjusted cost basis. Shares held longer than one year qualify for long-term capital gains rates of 0%, 15%, or 20%, with the brackets set by filing status and taxable income under the 2026 inflation adjustments. Shares sold within one year of purchase are taxed at ordinary rates, which reach 37% for 2026.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The holding period starts the day after you buy.
Higher earners owe an additional 3.8% Net Investment Income Tax when modified adjusted gross income exceeds $200,000 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.6Internal Revenue Service. Net Investment Income Tax Those thresholds are not indexed for inflation and have not changed since 2013. The 3.8% surtax applies to both long-term and short-term gains and to the qualified dividend portion of your AMLP distributions.
Wash Sales
Sell AMLP at a loss and buy it back within 30 days before or after the sale, and the IRS disallows the loss under the wash sale rule.7Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities The disallowed loss is added to the basis of the replacement shares, deferring rather than destroying it. If the replacement shares are bought inside an IRA, the deferred loss is generally forfeited because there is no way to recover the basis adjustment inside a tax-advantaged account.
AMLP Inside an IRA
Owning MLPs directly inside an IRA can generate Unrelated Business Taxable Income. UBTI arises because a retirement account is a tax-exempt entity, and income from an active trade or business flowing through a partnership becomes taxable to the account once it exceeds a $1,000 annual exemption.8Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income The custodian then has to file a return and pay the tax from the account.
AMLP avoids that problem. Because the fund is a C-corporation, it pays corporate tax on MLP income before distributing anything, and what reaches you is a dividend from a corporation rather than partnership income from an active business. Dividends from C-corporations are excluded from UBTI. That makes AMLP one of the cleaner ways to hold concentrated MLP exposure inside an IRA or 401(k).
The trade-off is that the fund-level corporate tax still hits, even in an account where you would otherwise owe nothing on dividends or gains until withdrawal. You pay for the UBTI-free structure through the embedded corporate tax drag whether the shares sit in a taxable account or a retirement account.
What Happens When Shares Are Inherited
If AMLP shares pass to an heir at the owner’s death, the cost basis resets to the fair market value on the date of death.9Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Every dollar of return of capital that reduced the original owner’s basis is wiped clean. The heir inherits a fresh basis at the current market value and a long-term holding period regardless of when the original shares were bought.
That step-up is meaningful for long-term holders. An investor who bought at $30, saw basis reduced to $22 through years of return of capital, and holds shares now worth $50 would owe tax on a $28 gain if they sold. If those same shares pass to an heir at a $50 market value, the heir’s basis is $50 and the built-in gain disappears. Years of tax deferral through return of capital become permanent tax avoidance at death.