Fuel transportation and marketing income qualifies under section 7704

Plain-English summary

A partnership planning an initial public offering expected to become a publicly traded partnership. It earned income from transporting, storing, and marketing a redacted type of fuel, primarily through sales to wholesalers, distributors, marketers, and commercial users rather than ordinary retail customers. The IRS ruled that this income was qualifying income under section 7704(d)(1)(E). The ruling did not decide whether the partnership satisfied the separate requirement that at least 90 percent of its gross income be qualifying income.

Ruling snapshot

• Question: Whether income from transporting, storing, and marketing the fuel was qualifying income for the publicly traded partnership rules
• Outcome: Approved
• Key authorities: I.R.C. § 7704(d)(1)(E)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201541008                                              Third Party Communication: None
Release Date: 10/9/2015                                        Date of Communication: Not Applicable
Index Number: 7704.03-00
                                                               Person To Contact:
------------------                                             ---------------------------, ID No. --------------
---------------------------                                    Telephone Number:
----------------------------                                   ----------------------
 -----------------------------------                           Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-110213-14
                                                               Date:
                                                               June 29, 2015




Legend

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

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


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

This letter responds to a letter dated March 5, 2014, submitted on behalf of X,
requesting a ruling concerning the qualifying income exception to the publicly traded
partnership rules of § 7704 of the Internal Revenue Code.

                                                       Facts

X is a limited liability company organized under the laws of State and is classified as a
partnership for federal tax purposes. X intends to sell interests in X in an initial public
offering. After the initial public offering, X will be a “publicly traded partnership” within
the meaning of § 7704(b). X expects to earn income that will meet the gross income
requirements of § 7704(c) from the transportation, storage, and marketing of ------------
fuel.

X primarily sells ------------ fuel, -------------------------------------------------------, to customers
who are not end-users, including wholesalers and other fuel distributors and marketers.
X also sells --- fuel to corporate and commercial users pursuant to negotiated contracts
resulting from a competitive bidding process in quantities and prices that are not
consistent with a retail sales transaction.

                                               Law and Analysis
PLR-110213-14                                 2


Section 7704(a), enacted by the Revenue Act of 1987, Pub. Law No. 100-203 (the
“1987 Act”), 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 the 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) defines “qualifying income” to include 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).

The Senate Report accompanying the Technical and Miscellaneous Revenue Act of
1988 provides the following:

       With respect to marketing of minerals and natural resources (e.g. oil and gas and
       products thereof), the Committee intends that qualifying income be income from
       marketing at the level of exploration, development, processing or refining oil and
       gas. By contrast, income from marketing minerals and natural resources to end
       users at the retail level is not intended to be qualifying income. For example,
       income from retail marketing with respect to refined petroleum products (e.g., gas
       station operations) is not intended to be treated as qualifying income. S. Rep. No.
       445, 100th Cong., 2d Sess. 424 (1988).

                                        Conclusion

Based solely on the facts presented and representations made, we conclude that
income derived by X from the transportation, storage, and marketing of ----fuel ------------
------------------------constitutes qualifying income within the meaning of § 7704(d)(1)(E).

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
PLR-110213-14                                  3

this letter. In particular, no opinion is expressed as to whether X meets the 90 percent
gross income requirement in § 7704(c).

The ruling contained in this letter is 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. 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) provides that this ruling 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 X’s authorized representatives.


                                       Sincerely,


                                       Joy Spies
                                       Joy Spies
                                       Senior Technician Reviewer, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)

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