Those are three investor worries my co-editor Elliott Gue and I get a lot of questions on these days. Happily, the short answer is none are a major concern for MLP Profits Portfolio holdings, though they do concern a number of master limited partnerships (MLP) in our How They Rate coverage universe.

As Elliott pointed out on Monday, BP’s (NYSE: BP) still-gushing undersea Macondo oil well is a major disaster for that company and the economy of the Gulf of Mexico region. It’s also a game-changer for deepwater drilling, in the Gulf and elsewhere.

No longer will producers–even the vast majority with solid safety records–be given the benefit of the doubt by government. It’s clear that Obama administration will allow shallow-water drilling to resume, most likely in the near future. And even deepwater should not be considered wholly off the table, given the country’s need for oil.

Tighter regulation, however, means that costs are almost certainly going a lot higher than they are now. Senate Democrats, for example, this week proposed more than quintupling the tax deepwater producers pay into a spill liability fund from 8 to 41 cents. And the worse the ultimate damage to the Gulf and beyond, the greater the burden of proof will be on drillers to prove what they’re doing is safe. That could push the breakeven point for deepwater projects well above the $60 per barrel often cited now.

Higher costs mean fewer projects are going to make sense to develop. And they mean fewer companies will have the means to do the job as well. That, in turn, means less production than we would otherwise have–and, ultimately, tighter supplies and higher prices for oil.

Of course, all we’re really concerned about here is how the troubles of deep water drilling affect Portfolio holdings. The table “Onshore, Offshore” has the answers.

As Elliott noted last week, Enterprise Products Partners LP (NYSE: EPD) is the MLP with perhaps the greatest exposure to offshore drilling, the legacy of assets acquired with the former GulfStream/El Paso Energy Partners a decade ago. The threat of slow/no growth in Gulf deepwater drilling will likely put investment plans there on hold. But with only 1.33 percent of revenues coming from the entire offshore pipeline operations–including the shallow-water Gulf–there will be virtually no impact on current results.

Moreover, Enterprise has plenty of opportunities to invest onshore. One of the biggest is in fee-based infrastructure serving areas rich in shale gas, which is certain to get a lot more attention and investment given the events in the Gulf.

Shale development, too, has come under fire on environmental grounds recently. This week Pennsylvania Governor Ed Rendell ordered producer EOG Resources (NYSE: EOG) to suspend operations in the state pending an investigation of a well blowout that spewed gas and some 35,000 gallons of drilling fluid (mostly water). That’s the latest challenge to Marcellus Shale development by regulators, who are also investigating a fire in a West Virginia well. Enterprise itself suffered the death of an employee from an explosion at a natural gas pipeline in Texas, triggering an investigation from the National Transportation Safety Board.

None of these accidents, however, triggered damages in the same ballpark with Macondo. And deepwater production or no, US oil demand is currently growing at a rate of more than 8 percent year over year. That’s the fastest pace of growth since 2006.

In short, this government has no choice but to allow onshore activity to continue growing. And since the federal government has the power to essentially override state decisions when it comes to energy development and transportation, onshore investment will grow.

The bottom line: Enterprise’s onshore operations’ growth will provide a much bigger benefit to the bottom line than its offshore operations are a potential liability. And the same should be true of the rest of the Portfolio holdings as well, all of which are even more focused on the onshore arena.

The three biggest beneficiaries could wind up being our three pure play producers EV Energy Partners LP (NSDQ: EVEP), Legacy Reserves LP (NSDQ: LGCY) and Linn Energy LLC (NSDQ: LINE). All three rely wholly on production of energy for cash flow, which means despite aggressive hedging distributions rise and fall when energy prices. All else equal, a lack of energy inflow from the deepwater Gulf means tighter supplies, higher energy prices, fatter cash flows and higher distributions.

UBTI and IRAs

Are MLPs suitable holdings for IRA accounts, and, if so, which ones to own? That’s another question we get a lot, not surprisingly given the volume of bad information out there and MLPs’ still bad reputation for complexity of tax filing, particularly K-1s.

The key sticking point is UBTI, or unrelated business taxable income. This is basically any earnings of an MLP that aren’t derived from operations, interest, royalties, rent and dividends from the core business.

Investors are theoretically liable to pay taxes on such income. In reality, however, the first $1,000 of UBTI generated by a single MLP isn’t taxed. That’s the official statement on the website of the National Association of Publicly Traded Partnerships.

To qualify as MLPs, companies must generate at least 90 percent from the type of income that’s exempt from UBTI. The upshot: Only investors who garner more than $10,000 in income from a single MLP are at any risk to being assessed UBTI taxes in an IRA.

Moreover, energy producer MLPs often generate UBTI, while energy infrastructure MLPs often create “negative” UBTI. As a result, even if an investor has a significant UBTI liability with one MLP, he or she can offset it with negative UBTI at another MLP.

The bottom line is that for all but a small handful of investors, the UBTI issue is really much ado about nothing. And if the MLP is held within an IRA, the IRA is the unitholder and therefore the taxpayer. That means the investor doesn’t file a Form K-1. Rather, the custodian is responsible for filing an IRA Form 990T. Thus, even this complication is eliminated.

There’s one very good reason for holding MLPs outside IRAs. That is the return of capital ROC tax treatment, which allows you to collect most or all of the distribution without paying taxes immediately. Rather, the amount paid as return of capital is deducted from your cost basis. Tax is paid only when you sell, and then as a long-term capital gain. And by willing the MLPs units to your heirs, the cost basis automatically adjusts upwards, so taxes are avoided altogether.

In contrast, MLP dividends paid inside IRAs aren’t taxed immediately. But when it comes time to withdraw your cash, you’ll be paying out at ordinary tax rates, though capital gains such as those realized over the past year will be sheltered.

There are also MLP investments that don’t require K-1s to be filed, whether they’re held in an IRA or not. In the Portfolio, these include Navios Maritime Partners LP (NYSE: NMM) and the closed-end fund Kayne Anderson Energy Total Return (NYSE: KYE). There’s also Kinder Morgan Management (NYSE: KMR), which pays its dividend in equity units and is tied to the same assets as Conservative Holding Kinder Morgan Energy Partners LP (NYSE: KMR).

All of these are suitable holdings for investors of all stripes. But again, our advice is to focus on the underlying business strength of any MLP you own first. Investing just to try to dodge the so-called issues of MLP taxation is as much a loser’s game as just picking out the highest yields. Mainly, when you don’t focus first and foremost on the buying the best business, you’re setting yourself up for trouble.

Carried Away

Since we launched MLP Profits we’ve warned investors to steer clear of any that relied on carried interest to pay their yields. Now the House of Representatives has passed a bill jacking up the rates on carried interest. And the Senate has taken up the torch to do the same. It’s time to repeat that warning.

Carried interest is a standard form of compensation for general partners in limited partnerships and limited liability corporations, essentially payment for managing others’ money. One example is the profit made by a real estate partnership that buys a building for $10 million and sells it for $12 million. The general partners’ (GP) share of profit is taxed at a preferential long-term capital gains rate, currently 15 percent rate, rather than at their regular income rate.

The Senate bill would raise the top tax rate on carried interest from the current 15 percent to a top rate of 35 percent, or 39.6 percent under President Obama’s plan to let Bush II era tax rates expire. On the bright side, the bill would tax only 65 percent of the total carried interest as regular income. That’s less than the 75 percent proposed by the House of Representatives earlier this year.

Critics charge this bill will dramatically reduce the pool of venture capital, limiting innovation and eliminating jobs. Energy MLPs, however, would be affected not at all.

Limited partnerships have no carried interest. For general partners of energy MLPs, carried interest includes the incentive distribution rights paid for performance, which is typically about 2 percent. This income, however, has been taxed all along at ordinary rates, as it’s from operating rather than investing activities. As a result, the carried interest bill has no implications either for LPs or GPs that are focused on energy.

That, unfortunately, may not be the case for financial and real estate MLPs, which more closely resemble the venture capital firms and hedge funds targeted by the legislation. We won’t know if and until legislation passes just exactly what the new tax rates will be. And it’s likely at least some of the MLPs that are affected will be able to restructure in a relatively painless way. But we continue to advise avoiding the MLPs that are most vulnerable to a slip of the pen.

Note that all MLPs vulnerable to the change in carried interest taxation are currently rated sells in MLP Profits. That includes AllianceBernstein Holding LP (NYSE: AB). And again, none of our favored energy-focused MLPs are in any way threatened by this legislation.

In fact, our favorite MLPs are set to come out of this Congress more competitive than ever. The main reason: The top tax rate on dividends paid by corporations is set to rise to at least 20 percent in a best-case, at worst to a new top ordinary income tax rate of 39.6 percent. We’ll keep you posted.

MLP News

As we’re in between earnings season, there’s relatively little business news for our holdings. Rather, the massive volatility we keep seeing in the markets is the result of the ebb and flow of investor emotion: selling everything for Treasuries on bad days and then buying it back when the economic news seems more hopeful. There was some news worthy of note, however.

Legacy Reserves has been mentioned as a potential acquirer for fellow Aggressive Holding Encore Energy Partners LP (NYE: ENP). Our view remains that both are attractive on their own but that Encore is a likely acquisition thanks for a very low price. Both MLPs took a hit during the Flash Crash on economic worries, Encore especially. But Legacy Reserves LP and Encore Energy Partners LP are solid buys for investors looking for energy producer exposure.

Linn Energy has announced drilling results from its first operated horizontal Granite Wash well in the Texas Panhandle. Management dubbed the finding “excellent” and plans to “accelerate” its drilling program in the region. This should keep output on the upside and allow the MLP to lock in even more cash flow going forward. Fully hedged through 2012, Linn Energy LLC is still a buy up to 30.

Dry-bulk rates are in bullish mode, a major plus for Navios Maritime Partners. The stock is now well off its highs, thanks to misplaced concerns about dilution from equity offerings to finance new ships, as well as what rates it will garner when a contract is up for renewal in early 2011. Better dry-bulk rates certainly assuage both concerns. That makes now an ideal time to buy Navios Maritime Partners LP.

Spectra Energy Partners LP (NYSE: SEP) does have some Gulf of Mexico exposure. But its Gulf Coast-to-Florida pipeline is still secure, and its Market Hub Partners isn’t likely to suffer much, either, due to its key location in producing areas. Meanwhile, infrastructure growth to shale plays continues. Spectra Energy Partners LP is still too expensive for new buys but is solid as a hold.

Sunoco Logistics Partners LP (NYSE: SXL) has inked a plan with Markwest Liberty Midstream & Resources to construct a transportation network capable of shipping up to 50,000 barrels of ethane from the Marcellus Shale Basin to the Gulf Coast by the second quarter of 2012.

Sunoco will build refrigerated ethane storage facilities, while Markwest will link up its facilities to Sunoco’s with a 45-mile pipeline in Pennsylvania. The project has the capability for expansion and should begin producing cash flow as soon as it’s in operation. Sunoco Logistics Partners LP is a solid buy for conservative and aggressive investors alike.