Qualifying Income Resources

Treatment of an MLP as a partnership for federal income tax purposes requires that 90 percent or more of the MLP’s gross income for every taxable year consists of “qualifying income.” In the context of a public offering, MLP investors require a high level of certainty with respect to the qualifying income nature of the MLP’s income-generating activities. If there is uncertainty as to the nature of an activity, it is possible to seek a private letter ruling (PLR) from the Internal Revenue Service with respect to the treatment of such activity.

The Treasury Department has recently proposed regulations that provide guidance on whether certain activities with respect to minerals or natural resources generate qualifying income. For a discussion of the proposed regulations, click here. Information regarding the proposed regulations, including relevant authorities and public comments in response to the proposed regulations, are available below. These materials reflect the opinions of the applicable authority or commentator as of the date of their submission and do not necessarily reflect the views of Vinson & Elkins LLP.

Qualifying Income Authorities

• Internal Revenue Code §7704 – The statutory qualifying income rule.
• Legislative History – Compilation of congressional reports regarding IRC §7704.
• Treasury Regulations §1.7704-3 – Existing treasury regulations regarding the qualifying income requirement.
• Proposed Treasury Regulations §1.7704-4 – New proposed standards for qualifying income under IRC §7704(d)(1)(E)
• Final Treasury Regulations §1.7704-4 – Final standards for qualifying income under IRC §7704(d)(1)(E)