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V&E Submits Comments on MLP Qualifying Income Proposed Regulations

Today, Vinson & Elkins LLP provided comments  in response to the proposed regulations (Proposed Regulations) from the Department of Treasury (Treasury) and the Internal Revenue Service (IRS) relating to qualifying income from the exploration, development, mining or production, processing, refining, transportation and marketing of minerals or natural resources. For prior discussion of the Proposed Regulations, click here. Among other things, the Proposed Regulations include new definitions of “processing” and “refining” that are significantly more restrictive than the prior interpretations of such terms by the IRS and by the MLP industry.

The V&E comments express our views regarding the meaning of “processing” and “refining” as used in section 7704(d)(1)(E) of the Internal Revenue Code and address certain statements in the preamble to the Proposed Regulations (and provisions of the Proposed Regulations to the same effect) relating to those terms. In addition, the V&E comments  include an outline of a proposed definition for both “processing” and “refining” that we believe addresses V&E’s concerns with the definitions in the Proposed Regulations. We believe this proposed standard can serve as a workable and supportable framework for determining which processing and refining activities generate qualifying income, as well as which do not. Read the V&E comments here.

Additional Background on Qualifying Income:

The Internal Revenue Code generally treats an MLP as a corporation, rather than a partnership, for federal income tax purposes unless 90 percent or more of the MLP’s gross income for every taxable year consists of “qualifying income.” For this purpose, “qualifying income” includes income derived from the exploration, development, mining, production, processing, refining, transportation, or marketing of minerals, natural resources, or industrial source carbon dioxide, and the transportation and storage of certain renewable fuels. Other types of qualifying income include dividends, interest (other than interest generated by a financial or insurance business), and certain income that would be qualifying to a real estate investment trust (REIT) or a regulated investment company (RIC).

Contact Info for MLP Team:

If you have questions or would like to discuss the Proposed Regulations, please contact a member of the V&E MLP tax team:

David Oelman +1.713.758.3708
John Lynch +1.713.758.1050
Gary Huffman +1.202.639.6771
Jim Meyer +
Ryan Carney +1.713.758.4720
Ramey Layne +1.713.758.4629

View prior MLP tax updates and all MLP Qualifying Income PLRs.


This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.