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House Leaders Send Letter to Treasury and IRS on Constraints Placed on MLP’s

Brady: I am concerned that proposed regulations will greatly impact an essential engine of economic growth during this energy renaissance.

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Washington, September 25, 2015 | comments

Washington, DC — Congressman Kevin Brady, (R-TX) released the following statement on a recent letter to Treasury Secretary Jack Lew and IRS Commissioner John Koskinen on the recently released notice of proposed rulemaking on Master Limited Partnerships (MLPs).”  Congressman Brady was joined by every Republican member of the Ways and Means Committee. The letter clarifies congressional intent on what activities qualify for Master Limited Partnership (MLP) status.  The recently proposed IRS rulemaking limits the scope of what qualifies for MLP status far more narrowly than Congress intended.  Congress intended MLP status to apply to all income derived from the exploration, development, mining or production, refining, transportation or marketing of minerals and natural resources.  The proposed rulemaking severely limits that list and would revoke previously issued Private Letter Rulings and restrict the activities that could be conducted by MLPs.

“The US needs to spend roughly $30 billion per year on oil and gas infrastructure to keep pace with the huge leaps in US production—that’s three times as much as we’re currently investing.  The only way that will be possible is through MLPs—they’re the most efficient vehicles for raising this sort of capital.  The IRS’ proposed rulemaking would severely hamper that.”

Background: When Congress first considered the tax treatment of MLPs, the House bill provided partnership treatment to MLPs engaged in the exploration, development, mining or production, refining, transportation or marketing of minerals and natural resources.  The Senate had no provision, but in Conference the list of qualified activities was expanded to include the processing of minerals and natural resources so that all activities resulting in chemical or physical changes to a mineral or natural resource would give rise to qualifying income provided such activities did not produce plastics or similar petroleum derivatives.   I understand that the proposed regulations articulate much narrower definitions of processing and refining that, if adopted without changes, would effectively revoke previously issued and relied upon PLRs and result in restricting the activities that could be conducted by MLPs.  This approach is not consistent with the legislative intent in providing partnership treatment to MLPs engaged in the many activities that constitute the processing and refining of minerals and natural resources and must be reconsidered.

To read the full letter click here.

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