PLR 1328005: IRS approves pipeline-related qualifying income

Plain-English summary

The IRS ruled that a publicly traded partnership’s gross income from relocating pipeline facilities, constructing and maintaining pipeline interconnects, and selling condensate collected from pipelines would be qualifying income under IRC § 7704(d)(1)(E). The activities were represented to be integral to transporting minerals or natural resources. The ruling did not decide whether the entity was otherwise taxable as a partnership.

Ruling snapshot

• Question: Would the taxpayer receive the requested federal tax treatment on the stated facts?
• Outcome: Approved, subject to the stated facts, representations, and conditions.
• Key authorities: IRC §§ 708, 7704.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201328005 Third Party Communication: None
Release Date: 7/12/2013 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:B02
PLR-112855-13
Date:
April 02, 2013

Legend:

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

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

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

This letter responds to a letter dated March 18, 2013, submitted on behalf of X,
requesting a ruling under § 7704(d)(1)(E) of the Internal Revenue Code.

X is a limited partnership organized under the laws of State. X, through affiliated
operating limited partnerships, limited liability companies or disregarded entities,
currently engages principally in activities that produce qualifying income under Section
7704(d)(1)(E) from the pipeline transportation of minerals or natural resources.

X expects to derive gross income from (i) relocating pipelines and related facilities used
by X to transport minerals or natural resources to accommodate requests from third
parties (e.g., to accommodate surface construction or subsurface development), (ii) the
construction, installation, maintenance, and operation of, and transfer by customers to X
of, interconnects to pipelines used by X to transport minerals or natural resources, and
(iii) the sale of condensate collected from pipelines used by X to transport minerals or
natural resources. X represents that these activities are integral to the pipeline
transportation of minerals and natural resources.
PLR-112855-13 2

X seeks a ruling that its gross income derived from such activities will constitute
qualifying income under § 7704(d)(1)(E).

Section 7704(a) provides generally 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 the partnership are traded on an established securities
market, or (2) interests in the partnership are readily tradable on a secondary market (or
substantial equivalent thereof).

Section 7704(c)(1) exempts from treatment as a corporation any publicly traded
partnership for any tax year if the partnership meets the gross income requirements of
§ 7704(c)(2) for that year and each preceding tax 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
for any tax year if 90% or more of the partnership’s gross income for that year consists
of qualifying income.

Section 7704(d)(1)(E) defines “qualifying income” to include income and gains derived
from the exploration, development, mining or production, processing, refining,
transportation, or marketing of any mineral or natural resource.

Based solely on the representations made and the facts submitted, we conclude that
X’s gross income derived from (i) relocating pipelines and related facilities used by X to
transport minerals or natural resources to accommodate third party requests, (ii) the
construction, installation, maintenance, and operation of, and transfer by customers to X
of, interconnects to pipelines used by X to transport minerals or natural resources, and
(iii) the sale of condensate collected from pipelines used by X to transport minerals or
natural resources is qualifying income within the meaning of § 7704(d)(1)(E).

Except for the specific ruling above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion as to whether X is taxable as a
partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. However, in the event of a
technical termination of X under § 708(b)(1)(B), the resulting partnership may continue
to rely on this ruling in determining its qualifying income under § 7704(d)(1)(E).
PLR-112855-13 3

According to § 6110(k)(3), this ruling may not be used or cited as precedent. Under a
power of attorney on file with this office, we are sending a copy of this letter to your
authorized representative.

                                  Sincerely,



                                  Bradford R. Poston
                                  Senior Counsel, Branch 2
                                  (Passthroughs & Special Industries)

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