Oil and gas services income qualifies under the publicly traded partnership rules

Number

201412007

Outcome

Approved

Document type

Private Letter Ruling

IRS subject

Qualifying Income

Topics

Procedure, penalties, and administration

Code sections

§ 7704, § 708, § 6110

Ruling dated

November 25, 2013

Publicly released

March 21, 2014

Source

View Official PDF

Apply this to your situation

This page covers one taxpayer's ruling, issued in 2014, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

The IRS ruled that income a publicly traded partnership expected to earn from specified services for customers in the oil and natural gas industry would be qualifying income under IRC § 7704(d)(1)(E). The partnership planned to acquire an affiliate's business and provide services connected with oil and gas production, processing, and transportation. The ruling allows the described service income to count toward the qualifying-income exception to the general corporate treatment of publicly traded partnerships. The IRS did not rule on whether the partnership would satisfy the separate requirement that at least 90 percent of its gross income be qualifying income in any taxable year.

Ruling snapshot

Question: Does the partnership's income from the described oil and gas services qualify under IRC § 7704(d)(1)(E)?
Outcome: Approved
Key authorities: IRC §§ 708(b)(1)(B), 7704(a), 7704(b), 7704(c), 7704(d)(1)(E)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201412007
Third Party Communication: None
Release Date: 3/21/2014
Date of Communication: Not Applicable
Index Number: 7704.03-00
Person To Contact:
-----------------
----------------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
-------------
---------------------
------------------------------------------------ Refer Reply To:
------------------------------
CC:PSI:B01
---------------------------------
PLR-131688-13
Date:
November 25, 2013

Legend

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

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

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

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

This letter responds to a letter dated July 12, 2013, submitted on behalf of X by X’s authorized representatives, requesting a ruling under § 7704(d)(1)(E) of the Internal Revenue Code.

FACTS

X is a limited partnership organized under the laws of State. Following an initial public offering, interests in X are expected to be listed and traded on a nationally recognized exchange. Thus, X will be a publicly-traded partnership within the meaning of § 7704(b).

X’s affiliate, Y, provides a full suite of -------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------- services to customers engaged in the oil and natural gas industry. X intends to acquire Y’s -----------------------------------------------------------------------------------------------------
-----------business, including customer contracts ------------------------------.

PLR-131688-13
2

-------------------Services

A portion of the ----------------- contracts -----------------------------------------------------------------
--------------------------------------------------------(“------------------ Agreements”). -------------------
------------------------------------------------------------------------------, Y is obligated to provide substantial services --------------------------------. In most cases Y is required to----------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------.

---------------------Services

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------.

PLR-131688-13
3

Y’s --------------------business is conducted pursuant to agreements -----------------------------
-------------------------------------------------------------------------------(“------------------------- Agreements”). Under the terms of the ---------------------Agreements, Y is obligated to provide substantial services --------------------------------. In most cases, Y is required to ---
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------.

----------------------------Services

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------under agreements ----------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------(“--------------------- Agreements”), -------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------.

LAW AND ANALYSIS

Section 7704(a) provides that, except as provided in § 7704(c), a publicly traded partnership will 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 the substantial equivalent thereof).

Section 7704(c)(1) provides that § 7704(a) does not apply to a publicly traded partnership for any taxable year if such partnership meets the gross income requirements of § 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, in relevant part, that a partnership meets the gross income requirements of § 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.

PLR-131688-13
4

Section 7704(d)(1)(E) provides that the term “qualifying income” includes income and 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, and timber).

CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that gross income derived by X from the provision of ----------------------------------services, ------
--------------------services, and ----------------services, -------------------------------------------------
--------------, as described above to customers engaged in the production, processing, and transportation of oil and natural gas constitutes qualifying income pursuant to § 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 X meets the 90 percent gross income requirement of § 7704(c)(1) in any taxable year for which this ruling may apply.

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). Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives.

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

cc:

What does the Code say today, for your facts?

This determination bound one taxpayer and cannot be cited. Ezel checks the current Internal Revenue Code and IRS guidance against your situation, with citations.

Opens in Ezel Pro.

Checks the law as it stands today, not only this page
Cites every source it relies on, so you can verify it
Chat, drafting and research in one workspace