IRS treats fuel additization fees as qualifying publicly traded partnership income

Plain-English summary

The IRS ruled that income earned by a publicly traded partnership from fuel additization activities was qualifying income under IRC § 7704(d)(1)(E). The partnership operated refined petroleum product terminals where it received, stored, transported, and loaded fuels, injected additives, and blended biodiesel with gasoline. The IRS treated fees for those activities as income from the processing, refining, transportation, or storage of fuel and natural resources. The ruling did not decide whether the partnership satisfied the separate 90 percent gross-income test.

Ruling snapshot

• Question: Did fees from fuel additization and biodiesel blending at refined petroleum product terminals qualify as income under IRC § 7704(d)(1)(E)?
• Outcome: Approved
• Key authorities: IRC §§ 7704(a), 7704(b), 7704(c), 7704(d)(1)(E), 6426, and 40A(d)(1)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201232008 Third Party Communication: None
Release Date: 8/10/2012 Date of Communication: Not Applicable
Person To Contact:
-------------------, ID No. -----------------
Telephone Number:
--------------------
----------------------------- Refer Reply To:
-------------------------- CC:PSI:B03
------------------------------------ PLR-104854-12
-------------------------------------- Date:
April 19, 2012

                                                 LEGEND

Company = -----------------------------

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

X = --

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

    This responds to a letter dated January 24, 2012, submitted on behalf of

Company requesting a ruling concerning the qualifying income exception to the publicly
traded partnership rules of § 7704 of the Internal Revenue Code.

                                                  FACTS

     The information submitted states that Company is a limited partnership organized

under the laws of State. Company is a “publicly traded partnership” within the meaning
of § 7704(b). Company, through affiliated limited liability companies or disregarded
entities, is principally engaged in the gathering, processing, transportation, storage and
distribution of refined petroleum products. This ruling request involves fees Company
charges as part of its fuel additization activities at its refined product terminals.

    Company owns X refined product terminals. Company’s refined product

terminals receive petroleum products from refineries, major common-carrier pipelines or
other vessels. Company stores these products at its refined product terminals which it
then loads onto delivery vehicles for transportation to the next point in the fuel supply
chain. Company charges a fee for receiving and loading fuels onto delivery vehicles for
transportation. During the loading process, Company also injects fuel additives and
blends biodiesel with gasoline. Company represents that it acts as a wholesale
distributor of refined petroleum products and is not engaged in retail activity.

PLR-104854-12 2

    Company generates fees at its refined product terminals for various additization

activities using a number of different types of additives at its terminals. Fuel additization
activities involve receiving additives from various suppliers and blending those additives
into fuel products in accordance with the requirements of Company’s customers.
Company receives some proprietary additives from customers for mixture in accordance
with the customer’s specifications. Company also uses generic additives that are
blended into fuels for sale to its customers. Additives are injected into fuels while the
fuels are being loaded onto transportation vehicles for delivery to customers.

    Company generates fees at its refined product terminals from biodiesel blending

activities. Company receives biodiesel from customers via truck or rail, which it then
pumps into storage tanks. Company blends biodiesel into gasoline by injecting the
biodiesel into gasoline via pipelines attached to the storage tanks while that gasoline is
being loaded onto transportation vehicles for delivery to customers.

   Company has requested a ruling that Company’s income derived from its fuel

additization activities constitute qualifying income under § 7704(d)(1)(E).

                               LAW AND ANALYSIS

   Section 7704(a) provides that a publicly traded partnership shall be treated as a

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

   Section 7704(c)(1) provides that § 7701(a) shall not apply to any publicly traded

partnership for any taxable year if such partnership met the gross income requirements
of § 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 § 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), industrial source carbon dioxide, or the transportation or storage of any fuel

PLR-104854-12 3

described in §§ 6426(b), (c), (d), or (e), or any alcohol fuel defined in § 6426(b)(4)(A) or
any biodiesel fuel as defined in § 40A(d)(1).

                                   CONCLUSION

    Based solely on the facts submitted and representations made, we conclude that

the income derived by Company from its additization activities is qualifying income
within the meaning of § 7704(d)(1)(E).

   Except as expressly provided herein, no opinion is expressed or implied

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

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

  Pursuant to the power of attorney on file with this office, a copy of this ruling will

be sent to the taxpayer's authorized representatives.

                                Sincerely,


                                James A. Quinn
                                Senior Counsel, Branch 3
                                Office of Associate Chief Counsel
                                (Passthroughs & Special Industries)

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

cc: