IRS Suspends MLP Qualifying Income Private Letter Rulings


The Internal Revenue Service (the “IRS”) has temporarily suspended the issuance of private letter rulings on master limited partnership (“MLP”) “qualifying income” under Internal Revenue Code Section 7704(d) during the pendency of an internal committee review of existing rulings in that area. An MLP may avoid taxation as a corporation if at least 90 percent of its income constitutes qualifying income, which is defined in Internal Revenue Code Section 7704(d) to include passive income from specified sources, such as income from the exploration, development, mining or production, processing, refining, transportation or marketing of certain minerals and natural resources (e.g., timber, natural gas, and oil). 

The internal committee has been tasked with evaluating the “aggressive” rulings regarding qualifying income of MLPs issued in recent years. The internal committee may determine that such rulings are too expansive and recommend stricter interpretations of what types of natural resources income constitute qualifying income. 

Upon completion of the internal committee review, the IRS may issue some form of guidance describing the policy determinations of the internal committee review. The internal committee review is tentatively expected to be completed in early May. At such time, the IRS will resume the issuance of rulings on qualifying income of MLPs and will apply its new guidance (if any) when determining the outcome of such rulings. 

If you have any questions, please contact one of the attorneys listed below.

Circular 230 Notice: In order to comply with certain U.S. Treasury regulations, unless expressly stated otherwise, any U.S. federal tax advice that may be contained in this written or electronic communication, including any attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other U.S. federal taxing authority or agency or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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