PLR 1129028: Petroleum blending and processing income qualifies under section 7704

Plain-English summary

A publicly traded partnership planned to acquire operations for blending, processing, packaging, and marketing specialty lubricant oils. The IRS ruled that income from processing refined petroleum distillates and lube oil base stocks into specialty lubricating oils is qualifying income under IRC § 7704(d)(1)(E). The ruling was based solely on the submitted facts and representations. The IRS did not opine on whether the partnership met the separate 90 percent gross-income requirement under IRC § 7704(c).

Ruling snapshot

• Question: Does income from processing refined petroleum distillates and lube oil base stocks into specialty lubricating oils qualify under IRC § 7704(d)(1)(E)?
• Outcome: approved
• Key authorities: IRC §§ 7701, 7704, and 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201129028
Release Date: 7/22/2011
Index Number: 7704.03-00

------------------------------------------------------------ Person To Contact:
---------- ----------------------, ID No. -------------
------------------------------------------ Telephone Number:
---------------------------------- Refer Reply To:
CC:PSI:B01
PLR-147506-10
Date:
April 07, 2011

LEGEND:

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

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

a = --

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

This letter responds to your letter dated November 18, 2010, submitted on behalf of X,
requesting a ruling that income derived from the blending, processing, packaging,
marketing and distribution of refined petroleum distillates and lube oils constitutes
qualifying income within the meaning of section 7704(d)(1)(E) of the Internal Revenue
Code (the Code).

                                                 FACTS

According to the information submitted and representations made, X is a limited
partnership organized under the laws of State. X is a publicly traded partnership within
the meaning of section 7704(b). X and its affiliates are engaged in the business of
storage, transportation, processing, and distribution of petroleum products, natural gas
and natural gas liquids. X intends to acquire certain operations and facilities for the
blending, processing, packaging and marketing of specialty lubricant oils to wholesalers.
Through these operations, X and its affiliates will purchase refined petroleum distillates
and lube oil base stocks from crude oil refineries, blend and process the base stocks (in
some cases adding non-petroleum additives of less than a% of the total lube blend) and
package and market the resulting specialty lubricants to wholesale distributors.
\fPLR-147506-10 2

                              LAW AND ANALYSIS

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

Section 7704(b) provides that, for purposes of section 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 section 7701(a) shall not apply to any publicly traded
partnership for any taxable year if such partnership met the gross income requirements
of section 7704(c)(2) for such 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) explains that a partnership meets the gross income requirements of
section 7704(c) for any taxable year if 90 percent or more of the gross income of such
partnership for such taxable year is qualifying income.

Section 7704(d)(1)(E) provides that the term qualifying income means income or 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 resource (including fertilizer, geothermal energy or
timber).
CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
the income derived by X from the processing of refined petroleum distillates and lube oil
base stocks into specialty lubricating oils is qualifying income within the meaning of
section 7704(d)(1)(E).

Except as expressly provided herein, we express or imply no opinion concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter. In particular, we express no opinion as to whether X meets the 90 percent gross
income requirement of section 7704(c) in any taxable year.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.
\fPLR-147506-10 3

Pursuant to the power of attorney on file with this office, copies of this letter will be sent
to X’s authorized representative.

                                           Sincerely,


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

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