I got a call from a friend the past weekend, who bought EUO as I recommended. While it was comforting to hear that his EUO positions were increasing in value, it was quite disturbing to know that he has to report quite a large amount of "capital gain" that he has not obtained.
I mentioned briefly before that people investing in ETFs should be cautious about the K-1 form for tax reporting. This is the form for reporting tax for companies structured as partnership. For real partnership companies, what I learnt from reading is that this is a tax benefit for investors, although I must say reporting K-1 form is kind of hassle. I never enjoy it, so I generally try my best to avoid such companies' stocks. The real problem is for ETFs. Many ETFs are also structured as partnership and will also issue K-1 for tax reporting. While I don't understand the exact specifics, such funds can generate capital gains and will report them on the K-1 form for you to report, even though you have never got such gains. Apparently EUO is one of them and is causing a big headache for my friend. I'd suggest to simply sell EUO shares to avoid the continuous problem of this kind.
I usually try to use options to trade ETFs to avoid physically owning such funds. That's what I have been doing with EUO. As such I have never known this problem in the past. If I cannot use options, I will try to review their prospectus about the fund's details and search for the word "partnership". Usually one can find this kind of information. If you are not sure, better not to trade ETFs directly.
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