IRS modifies a prior ruling for a partnership structure

Plain-English summary

The IRS modified an earlier private letter ruling about income from mining and marketing silica for use in oil and gas production. The modification reflects a change in the planned initial public offering structure, so the partnership conducting the activities will be a different entity with a different taxpayer identification number. The IRS concluded that the modified ruling applies retroactively to the earlier ruling date and that the original analysis and conclusion remain unchanged. The underlying conclusion was that the income constituted qualifying income under section 7704(d)(1)(E).

Ruling snapshot

• Question: Whether a prior ruling could be modified to reflect a changed partnership structure.
• Outcome: Prior ruling modified retroactively.
• Key authorities: IRC § 7704(d)(1)(E); Rev. Proc. 2012-1, §§ 11.04 and 11.05.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201316005 Third Party Communication: None
Release Date: 4/19/2013 Date of Communication: Not Applicable
Index Number: 7704.00-00
Person To Contact:
----------------------------------- ----------------------------, ID No. --------------
--------------------------------- ----------------------------------------------------
-------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-130592-12
Date:
December 27, 2012

LEGEND

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

Y = ------------------------------
------------------------

Z = -------------------------

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

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

This letter responds to a letter from Y’s authorized representative dated July 16, 2012
requesting a modification of LTR 201233009 (the Original Ruling) issued to X on
February 10, 2012.

In the Original Ruling, based solely on the information submitted and representations
made, we conclude “that income derived by the Partnership from the mining and
marketing of silica for sale to oil field service companies for injection as a proppant in
the production of crude oil and natural gas constitutes qualifying income within the
meaning of § 7704(d)(1)(E).”

SUPPLEMENTAL FACTS SUBMITTED
PLR-130592-12 2

According to the letter from Y’s authorized representative dated July 16, 2012, Y is a
limited partnership formed under the laws of State. Its general partner is Z, a State
limited liability company whose sole member is X. Currently, X also holds 100% of the
limited partner interests in Y.

MODIFIED FACTS SUBMITTED

The first paragraph of the Facts section of the Original Ruling describes a particular
initial public offering (IPO) structure, which would result in the Partnership having the
same taxpayer identification number as X. More specifically, the owners of X planned
to contribute their equity interests in X to a new partnership or convert X into a limited
partnership.

However, according to the letter from Y’s authorized representative dated July 16, 2012,
another IPO structure has been selected, with the result that the Partnership that will
conduct the activities described in the Original Ruling is Y. The Partnership will have
the same taxpayer identification number as Y. According to the letter, the activities of
the Partnership have not changed.

LAW AND ANALYSIS

Section 11.04 of Rev. Proc. 2012-1, 2012-1 I.R.B. 1, provides that a letter ruling may be
revoked or modified if found to be in error or there has been a change in law. Section
11.05 provides that a letter ruling revoked or modified based on a material change in
facts is applied retroactively.

CONCLUSION

Based solely on the information submitted and representations made, we conclude that
the Original Ruling should be modified to apply to Y and its conduct of the activities
described in the Original Ruling. This modification, which relates to a material change
in facts, applies retroactively as of February 10, 2012. The analysis and conclusion of
the Original Ruling remain the same.

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.
PLR-130592-12 3

In accordance with the Power of Attorney currently on file with the Internal Revenue
Service, we are sending a copy of this letter to Y’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 of this letter for section 6110 purposes

cc: