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OK, on MLP’s and taxes:

Obviously, MLP’s are partnerships, hence the ‘P’ in MLP. You are a limited partner when you buy their listed shares, and as a partner you receive a K-1 for the tax reporting. NB that if you like to do your 1040 early, you’re going to be confounded by the K-1’s, because they don’t have to issue a K-1 much before March.

Let’s talk first about the IRA issue: Owning MLP’s in an IRA is an issue even without the ETF issue, because of how MLP’s already receive favorable tax treatment and have a partnership organization instead of a corporate entity organization.

In a corporation, if they take on debt, your liability is limited to what equity you have in the company. So you can’t deduct interest expenses, etc just because you own stock in the corporation. In a partnership, the tax situation is distributed proportionally to the partners, both master and limited. They can pass debt interest deductions through to their members, as well as capital losses and other tax reported items on the K-1. IRA’s have limitations on such investment(s).

There are other tax issues as well; the partnership might make money from lending money, or they might make money that is pretty much unrelated to the stated purpose of the partnership that is being given favorable tax treatment. These become additional complications that can run afoul of IRA limitations.

For these reasons, I wouldn’t hold a MLP in a IRA. I mechanically can do it (ie, a self-directed IRA broker probably won’t prevent you from buying the shares in your IRA), but I would not want to be in a position of having to deal with the IRA should they decide to tell me “Uh, listen, you need to address some issues with that partnership you held in your IRA.” I would now need to fully understand the MLP’s books and accounting and the IRA *and* MLP tax law to contest any IRA assertion that you had generated a tax liability from owning a MLP in your IRA.

I have enough work to do understanding my books and taxes. I’m not signing up to do that work on someone else’s books because the IRS decided that they don’t like their accounting or my tax treatment. So I simply don’t own MLP’s in our IRA’s. I just don’t do it. Into the IRA’s, I’ll put other dividend-yielding stocks or bonds, or preferred stocks, but I won’t put MLP’s. For me, the easiest rule of thumb on what to put into IRA’s goes like this: “Was this security (stock, bond or preferred stock) issued by a C corporation? If yes, then continue evaluation. If no, then no further consideration is necessary.”

OK, now on to the ETN issue, which you understand, but I’m going to elaborate for others:

I don’t like ETN’s, in or out of IRA’s. ETN’s (Exchange Traded Notes) actually are NOT backed by anything other than the credit and guile of the investment bank that is issuing them. They hold none of the “underlying” instruments - the ETN is priced to return according to an index or basket of underlying instruments, but the ETN doesn’t fundamentally have anything in it (ie, it doesn’t own shares of the MLP’s in this case).

Given the mendacity and duplicity of the banks of the west in the last three years, I want something a tad more substantial than a wooden nickel with “Trust Us” embossed on one side, and “Sucker!” on the other, inside the “black box.”