The IRS made the statement in a private letter ruling issued to a company that turns raw logs, wood chips and sawdust into wood pellets and then sells the pellets in bulk to retailers. The company also debarks logs that it chips and then the sells the wood chips and bark to one or more wholesale customers. Sometimes it simply earns a fee for chipping and debarking logs belonging to the customers.

MLPs, or master limited partnerships, are large partnerships whose units are publicly traded. No taxes are collected at the entity level. Rather, earnings are taxed directly to the partners. MLPs must receive at least 90% of their income each year from good sources. Good income includes rents from real property, interest, dividends and from “exploration, development, mining or production, processing, refining, transportation . . . or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber).” Companies organized as MLPs can raise equity at high multiples to earnings because no taxes are taken out of the earnings at the company level.

The IRS said the income the company expects to earn from its wood pellet and chipping businesses is good income. The ruling is Private Letter Ruling 201722023. The IRS made it public in early June.

The IRS said the ruling would not apply to income earned from making retail sales of wood pellets or chips directly to end users.

The company is planning an initial public offering.