IRS Wants ‘Exclusive List' in Master Limited Partnership Rules

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Oct. 1 — The IRS plans to keep an exclusive list of income-generating activities needed to maintain master limited partnership status when it finalizes rules proposed earlier this year, an agency official said.

The Internal Revenue Service wants to draw clear boundaries for activities in the natural resource sector that are permissible to reduce the number of private letter rulings needed and to make it easier for practitioners to advise clients, Curtis G. Wilson, IRS associate chief counsel (passthroughs and special industries) said Oct. 1.

The proposed regulations (REG-132634-14) under tax code Section 7704(d)(1)(e), which scaled back activities tied to chemicals, timber and coal that had been allowed in previous PLRs, were the first attempt by the government to issue regulations that defined what types of activities were allowed (87 DTR G-1, 5/6/15).

‘Gone Too Far.'

MLPs, a type of publicly traded partnerships, have relied exclusively on ruling letters for certainty of their tax status since 1987. The IRS was worried it had “gone too far” and is “reluctant” to have open-ended guidance about what type of income is permissible, Wilson said at the Master Limited Partnership Association annual meeting in Washington.

“We're hearing lots of things that should've been on the list that got left off,” Wilson said. “It was our best shot with what we knew at the time.”

Taxpayers should think of the activities on the list as “umbrella categories,” Tom West, tax legislative counsel at the Treasury Department, said. The government could issue more guidance under certain categories or could expand the list in the final version, he said. Wilson said in September that the proposed rules may have incorrectly excluded olefins, a natural gas product used to make plastics (182 DTR G-9, 9/21/15).

Practical Considerations

The industry has criticized the exclusive list of qualifying activities, saying that it isn't practical to create such a list because technology in the industry changes rapidly. Some have said that activities that are commonplace in MLPS, like commodity hedging, to reduce exposure to oil price fluctuations, aren't obvious to regulators drafting the rules.

West said the IRS could continue to keep the list updated through subregulatory guidance, such as revenue rulings and notices, which can be issued more quickly than regulations.

More than 130 commenters have sent letters to the IRS, Wilson said. Approximately 90 of the comments were from investors and the remaining 40 were “more substantive,” he said. Many of the comments focused on the definition of processing and refining, which can differ among industries.

“We know processing is a concern. We are looking at it closely,” West said. “We are moving forward with the intention of finalizing these regulations. That doesn't necessarily mean that they will be finalized in this form.”

The IRS has scheduled an Oct. 27 public hearing on the proposed rules.

To contact the reporter on this story: Laura Davison in Washington at
To contact the editor responsible for this story: Brett Ferguson at

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