Corporations That Distribute All Income As Dividends

No type can issue all of its income that misses the corporate tax rules as a qualified dividend. Some class C corporations miss paying corporate income tax by paying out the available money as salaries. The salaries are deductible, and the corporation can then pay no income tax because of no income. But the salary receivers pay income tax.

S corps can have some savings by paying a mix of non-qual dividends and salaries.

You assume wrongly. Linn Energy, LLC is an LLC. They will issue a K-1, and things will pass thru to the unitholder's income tax forms. There are probably significant deductions, but the net income is taxed as income-- not as qualified dividends. They do tend to have taxable income much lower than the distributions during the early part of the life. The income tax can be relatively complex, but theses things can be good investments due to the high yields. There are some tax advantages where the expenses of oil wells and explorations tend to be deductible early in the life.

Also, note that oil/gas wells do run out of oil. They are being depleted, so an 11% yield takes into account that the cash flow is not expected to last for a really long time.

Some tax deferrals and credits are industry specific. Oil and real estate are two such industries that come to mind.

My observations are neither professional nor necessarily precise.

It looks to me like Linn Energy is an LLC, and they have this to say about their treatment as a partnership for income tax purposes:

"Tax Risks to Unitholders ? Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income tax purposes or we were to become subject to entity-level taxation for state tax purposes, taxes paid, if any, would reduce the amount of cash available for distribution."

And - but this is only a guess - I suspect their distribution to their investors is *not* a dividend, and not a qualifying dividend, and is not subject to the special 15% tax rate. They probably send out a K-1 to their investor/partners.

Here's a paragraph from Linn Energy LLC's recent press release, which says quite a bit by what it doesn't say, if you know what I mean:

"Cash Distributions In July 2008, the Company's Board of Directors declared a quarterly cash distribution of $0.63 per unit, or $2.52 per unit on an annualized basis, with respect to the second quarter 2008. The distribution will be paid on August 14, 2008 to unitholders of record as of the close of business on August 7, 2008."

Note that they don't mention shareholders or dividends, only unitholders and distributions. I suspect this distribution is *not* a qualifying dividend, and that the company's taxable income is reported as a "distributable item" to its owners on Schedule K-1. i.e.,

It's a Master Limited Partnership. One thing you need to watch out for is UBTI (unrelated Business Taxable Income) if you own this type of entity in an IRA. More than $1000 of UBTI requires the IRA to file form 990-T and pay taxes at trust rates. In addition, the trustee is the one who files the tax return for the trust (an IRA is a trust). Suffice to say, trustees do not file tax returns for IRAs for free.

If you mean, can you get corporate profits taxed only one time and taxed only at 15%, then answer is no.