Master Limited Partnership
MASTER LIMITED PARTNERSHIP rulings resume.
The IRS lifted a hold in March on private letter rulings to companies that want to organize as master limited partnerships.
Master limited partnerships, or MLPs, are partnerships whose units are traded on a stock exchange or secondary market. Partnerships are not subject to federal income taxes; rather, each partner is taxed directly on his share of the partnership’s income. Under US tax law, any partnership whose units are publicly traded is taxed like a corporation. An MLP is a partnership that is able to retain its status as a partnership, despite public trading, under a special rule in section 7704 of the US tax code that preserves partnership status as long as at least 90% of the partnership’s income each year comes from passive sources — like interest and dividends — or is income from producing, processing, refining, transporting or marketing minerals or natural resources. Wind and sunlight are not considered natural resources because they are inexhaustible.
The IRS put a hold in March 2014 on any further rulings about qualification of entities as MLPs while it sorted out a “hamburger stand” issue. A third of MLP rulings in the year before the hold involved companies that provide services in connection with hydraulic fracturing of oil and gas. The IRS has been concerned about rulings creep as services become farther and farther removed from actual oil or gas production. For example, is owning hamburger stands at fracking sites to feed workers closely enough related to oil and gas production to qualify?
Treasury officials said the IRS is now starting to process ruling requests that it had been holding.
Proposed regulations are expected shortly about what qualifies as income from producing, processing, transporting or marketing “minerals or natural resources.”
The hold had affected ruling requests by paper companies to put part of their operations under MLPs to the extent paper companies were asking whether their income is from “processing” natural resources. Work on those rulings will now resume.
An internal draft of the proposed regulations is circulating with the IRS and Treasury.
by Keith Martin in Washington