Todd Keator Quoted in Tax Notes Today on IRS Regs on PTP Qualifying Income

“IRS ISSUES FINAL REGS ON PTP QUALIFYING INCOME”

The IRS has issued final regulations under section 7704(d)(1)(E) relating to the qualifying income exception for publicly traded partnerships to not be treated as corporations for federal income tax purposes.

The increase in PLR requests has been driven by a combination of factors. First, legal counsel have told the Department of the Treasury (Treasury Department) and the IRS that they are reluctant to issue opinion letters unless a certain activity was clearly contemplated by Congress, which has required PTPs to seek PLRs as their activities expand beyond more traditional qualifying activities, for example because of technological advances, deconsolidation, and specialization. Second, investor demand for higher yields has increased the incentive to push for an expanded definition of qualifying income through PLR requests concerning novel or non-traditional activities. See Todd Keator, “Hydraulically Fracturing” Section 7704(d)(1)(E) — Stimulating Novel Sources of “Qualifying Income” for MLPs, 29 Tax Mgmt. Real Est. J. 223, 227 (2013). Third, a PLR may not be used as precedent, requiring each PTP to obtain its own PLR for activities similar to those of a competitor. See section 6110(k)(3).