IRS rules that natural-resource logistics income is qualifying income under section 7704

Plain-English summary

The IRS ruled that income earned by a limited partnership from natural-resource storage, transportation, processing, distribution, and related logistics activities was qualifying income under section 7704(d)(1)(E). The ruling covered the partnership's existing access and throughput activities and the activities of a business it intended to acquire. This treatment allows a publicly traded partnership to qualify for the section 7704 exception from corporate treatment if it also meets the applicable gross-income requirements. The ruling was based solely on the taxpayer's representations and did not address whether the partnership was otherwise taxable as a partnership.

Ruling snapshot

• Question: Does the partnership's income from the described natural-resource activities qualify under IRC § 7704(d)(1)(E)?
• Outcome: Approved
• Key authorities: IRC §§ 7704(a), (b), (c), (d)(1)(E); 708(b)(1)(B)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201347015 Third Party Communication: None
Release Date: 11/22/2013 Date of Communication: Not Applicable
Index Number: 7704.03-00
Person To Contact:
---------------- -------------------, ID No. ------------------
----------------------------------- Telephone Number:
----------------------------------------- ----------------------
--------------------------- Refer Reply To:
------------------------------- CC:PSI:B02
PLR-128457-13
Date:
July 22, 2013

Legend:

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

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

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

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

This letter responds to a letter dated June 20, 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 in activities that produce qualifying income under § 7704(d)(1)(E) in
its diversified business focused on the storage, transportation, processing and
distribution of natural resources.

As part of X’s existing natural resource operations, X derives gross income from ----------

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-(“Access and Throughput Activities”).
PLR-128457-13 2

X intends to acquire Y, an energy logistics business. Y has two lines of business. Y
provides beginning to end logistics services ----------------------------------------------------------

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--------------------------------(“Energy Logistics Support Services”). In addition, Y also sells
and/or delivers refined petroleum products and other chemicals necessary for the
exploration, drilling and production of oil and natural gas, to exploration and production
companies and provides exploration and production companies with recycling and
disposal services for many of these refined petroleum products and chemicals (“Oilfield
Supply and Distribution”).

X seeks a ruling that its gross income derived from Access and Throughput Activities,
Energy Logistics Support Services, and Oilfield Supply and Distribution constitutes
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 from Access and Throughput Activities, Energy Logistics Support
Services, and Oilfield Supply and Distribution, is qualifying income within the meaning of
§ 7704 (d)(1)(E).
PLR-128457-13 3

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).

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 representatives.

                                   Sincerely,




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

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