Freedom Checks are cash payments made to shareholders of publicly traded companies called Master Limited partnerships(MLPs). To be classified as an MLP, a company must be in the energy industry and it has to pass on 90 percent of its profit onto shareholders. Freedom Checks are issued for American companies based on 26 U.S. Code 7704 Subdivision F. This allows them to be a form of payment that is not subject to federal taxes.
Freedom Checks were a way to provide an incentive for people to invest in the oil and gas companies. The laws regarding MPLs were passed in 1981 during Nixon’s presidency as an incentive to produce domestic oil and gas in the United States.
There are approximately 568 companies that are classified as MLPs. Every year they issue over 34 billion dollars to shareholders in the form of Freedom Checks. They work in a way that is similar to dividend payments from investments. Just like market shares, the payout depends on the value of the company and the payments are issued on a quarterly basis. Freedom Checks are received in the same way that dividends from a traditional investment in stocks would be. Like with any other investment, their annual yield varies from company to company but MPLs typically average around five percent. They tend to be a type of slow growth investment that is low risk.
The reason why MPLs can remain stable while oil and gas prices fluctuate is that many of the companies involved are responsible for transporting these commodities and provide services that are not outright dependent on the current value for fossil fuels. Investing in an MLP carries similar benefits and risks as investing in other types of stocks. It can serve as an additional way to build wealth over time by providing an additional source of passive income.