PLR 1141013: Transportation income qualifies under the publicly traded partnership rules

Plain-English summary

A publicly traded partnership asked whether income from transporting materials from and to refineries would be qualifying income under the publicly traded partnership rules. The partnership and its affiliates operated in the storage, transportation, processing, and distribution of petroleum products, natural gas, and natural gas liquids. The IRS ruled that the described transportation income qualifies under section 7704(d)(1)(E). The ruling did not determine whether the partnership satisfies the separate 90 percent gross-income requirement under section 7704(c).

Ruling snapshot

• Question: Whether specified transportation income from refinery-related services is qualifying income under section 7704(d)(1)(E).
• Outcome: Approved.
• Key authorities: IRC §§ 7704(c) and 7704(d)(1)(E).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201141013 [Third Party Communication:
Release Date: 10/14/2011 Date of Communication: Month DD, YYYY]
Index Number: 7704.03-00
Person To Contact:
------------------------------------------------------ ----------------------, ID No. -------------
------------------------------------------ Telephone Number:
-------------------------- ---------------------
------------------------------ Refer Reply To:
CC:PSI:B01
PLR-147523-10
Date:
April 07, 2011

LEGEND

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

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

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

This letter responds to your letter dated November 18, 2010, submitted on behalf of X,
requesting a ruling that income derived from the transportation ---------------------------------
------------------------ from refineries and the transportation ------------------------------------------
to refineries 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 the 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 facilities that ---------------------------------------
--------------------------used by refineries in the process of -------------------------------------------

-----------------------.
PLR-147523-10 2

Additionally, personnel of X will provide onsite refinery services to its customers,
consulting on the use of the -----------------in the -------------process and ------------------------

                                       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 7704(a) does 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 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
section 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 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 transportation -----------------------------------------------------
from refineries and the transportation ------------------------------------------to refineries 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.
PLR-147523-10 3

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.

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 the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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