IRS ISSUES PROPOSED REGULATIONS UNDER SECTION 7704

The Internal Revenue Service (IRS) recently issued new proposed regulations which address the definition of “qualifying income” for natural resource Master Limited Partnerships (MLPs) under section 7704 of the U.S. tax code. The proposed regulations do not impact the vast majority of activities undertaken by MLPs and when finalized should provide helpful guidance as to whether an activity generates income that can be properly taken into account by an MLP.

The National Association of Publicly Traded Partnerships (NAPTP) believes that the proposed regulations are a thoughtful and carefully prepared effort by the IRS to develop workable standards to guide activities under section 7704. Nonetheless, we are concerned that some aspects of the proposed regulations are inconsistent with Congressional intent in enacting section 7704 and with longstanding interpretations of that statute. We are also concerned that the IRS’ decision to propose specific and differing rules for each petroleum product treats some natural resources and the processing of those resources more favorably than others, again in a manner not intended by Congress.

NAPTP is working with its members to fully analyze all aspects of the proposed regulations and plans to provide the IRS with detailed comments and additional feedback on the proposals. We look forward to actively working with the IRS to ensure any future regulations accurately reflect congressional intent and current practices in natural resource industries in applying the MLP provisions for natural resources.

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Click here for the text of the proposed regulations.