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IRS Issues Proposed Regulations for Publicly Traded Partnerships

On May 6, 2015, the Internal Revenue Service (IRS) issued notable proposed regulations (REG-132634-14) clarifying the publicly traded partnership (PTP) activities, in the minerals and natural resources sectors, that will produce qualifying income for the purposes of Section 7704 of the Internal Revenue Code of 1986, as amended.

As a general rule, PTPs are taxed as corporations. Section 7704(c) exempts PTPs from this rule if 90% or more of their gross income is “qualifying income.” Qualifying Income is generally passive-activity income, and includes income from interest, dividends and rent. Section 7704(d)(1)(E) provides, however, that qualifying income also includes income derived from the exploration, development, mining or production, processing, refining, transportation, or marketing of minerals or natural resources (Section 7704(d)(1)(E) activities). Until now, the IRS had not issued regulations under Section 7704(d)(1)(E). The proposed regulations were issued in response to an increase in the number of requests for private letter rulings as to whether income derived from “support services” provided to businesses engaged in Section 7704(d)(1)(E) activities is qualifying income for the purposes of the 7704(c) exception. More…