PLR 201114001: IRS treats certain partnership sale income as qualifying income

Plain-English summary

An LLC planned to form a publicly traded partnership whose interests would be listed on a nationally recognized exchange. The partnership would conduct redacted activities through affiliated entities and sell redacted products or property. The IRS ruled that income from the specified sales would be qualifying income under IRC § 7704(d)(1)(E). The ruling did not decide whether the partnership would satisfy the separate 90 percent gross-income test for publicly traded partnerships.

Ruling snapshot

• Question: Would income from the partnership's specified sales constitute qualifying income?
• Outcome: Approved, the specified sale income was treated as qualifying income.
• Key authorities: IRC §§ 7704 and 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201114001
Third Party Communication: None
Release Date: 4/8/2011
Date of Communication: Not Applicable
Index Number: 7704.03-00
Person To Contact:
------------------------------------------------ -------------------, ID No. -----------
--------------------------------------------- Telephone Number:
------------------------------------------ ---------------------
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Refer Reply To:
CC:PSI:B01
PLR-123366-10
Date:
September 27, 2010

Legend:

X = ----------------------------------------------
-------------------------------------------

Partnership = -------------------------------------------

State = --------------

Dear -------------:

This letter responds to a letter dated May 27, 2010, submitted on behalf of X, requesting a ruling under § 7704(d)(1)(E) of the Internal Revenue Code.

Facts

X is a limited liability company organized under the laws of State. X intends to form a publicly-traded partnership either by creating a new entity or by consummating an initial public offering itself, hereinafter Partnership. The interests in Partnership will be listed and traded on a nationally recognized exchange.

Partnership will --------------------------------------through affiliated operating limited partnerships, limited liability companies, or disregarded entities, and sell --------------------
------------ to -----------------------------------------------------------------------------.

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To ----------------------------------------------------------------------------------------------------------------
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------------------------------------------------, Partnership will be engaged in the following --------
--------------------------activities. -----------------------------------------------------------------------------
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Partnership will sell -------------------to --------------------------------------------------------------------
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X requests a ruling that income derived from the sale of --------------------------will constitute qualifying income under § 7704(d)(1)(E).

Law and Analysis

Section 7704(a) provides that, except as provided in § 7704(c), a publicly traded partnership, will be treated as a corporation.

Section 7704(b) provides that, for purposes of § 7704, the term “publicly traded partnership” means any partnership if (1) interests in the partnership are traded on an established securities market, or (2) interests in the partnership are readily tradable on a secondary market (or the substantial equivalent thereof).

Section 7704(c)(1) provides that § 7704(a) does not apply to a publicly traded partnership for any taxable year if such partnership meets the gross income
PLR-123366-10
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requirements of § 7704(c)(2) for the taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence.

Section 7704(c)(2) provides that a partnership meets the gross income requirements of
§ 7704(c)(2) for any taxable year if 90 percent or more of the gross income of the partnership for the taxable year consists of qualifying income.

Section 7704(d)(1)(E) provides that the term “qualifying income” includes income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resources (including fertilizer, geothermal energy, and timber).

Conclusion

Based solely on the facts submitted and the presentations made, we conclude that the income derived by Partnership from the sale of --------------------------will constitute qualifying income within the meaning of § 7704(d)(1)(E).

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, no opinion is expressed or implied as to whether Partnership meets the 90 percent gross income requirement of § 7704(c)(1) in any taxable year for which this ruling may apply.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
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In accordance with the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

David R. Haglund
David R. Haglund
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes

cc: