TEI comments on IRS proposed regulations impacting publicly traded partnerships.

• Position: Tax Executives Institute

On August 3,2015, TEI submitted comments to the IRS on proposed regulations (REG-132634-14) relating to qualifying income from activities of publicly traded partnerships with respect to minerals or natural resources. The Institute's comments focused on how the proposed regulations fall to capture the complex processes and activities carried on by publicly traded partnerships and, as a result, propose rules that are inconsistent with section 7704(d)(1)(E) and its legislative history as previously interpreted and applied by the IRS in 27 years of ruling practice. TEI recommended, among other things, that the IRS consult directly with industry experts and adversely Impacted taxpayers before finalizing the proposed regulations. TEI's comments were prepared under the aegis of TEI's Federal Tax Committee, whose chair is Katrina Welch. Patrick Evans, TEI's Chief Tax Counsel, coordinated the preparation of TEI's comments.

On May 5, 2015, the Internal Revenue Service (IRS) and Treasury Department (Treasury) issued proposed regulations under section 7704(d)(1)(E) of the Internal Revenue Code relating to the classification of income from certain activities with respect to minerals or natural resources as qualifying income (the "Proposed Regulations"). (1) The Proposed Regulations would apply to income earned by a partnership in a taxable year beginning on or after the date the regulations are finalized. Additionally, the Proposed Regulations provide a 10-year transition period for certain partnerships adversely affected by the Proposed Regulations during which a partnership may treat income from an activity as qualifying income.

Tax Executives Institute, Inc. (TEI or the Institute) appreciates the efforts the IRS and Treasury have undertaken to clarify the rules concerning qualifying income from activities relating to natural resources and to simplify the administration of this complex area of the law.

If finalized, the Proposed Regulations would dictate the entity classification of publicly traded partnerships (PTPs) conducting the affected activities, which in turn, would have a material impact not only on the taxation of the PTPs and their unit holders, but also the market values of these entities. It is therefore critical that the Proposed Regulations reflect sound policy judgments firmly grounded in the law and industry-specific facts relevant to the entity classification determination. TEI members have significant industry knowledge and experience with these issues, and the Institute is pleased to submit the following comments on the Proposed Regulations.

Tax Executives Institute

TEI is the preeminent association of in-house tax professionals worldwide. Our approximately 7,000 members represent more than 2,800 of the leading corporations in North and South America, Europe, and Asia. TEI represents a cross-section of the business community and is dedicated to developing and effectively implementing sound tax policy, promoting the uniform and equitable enforcement of the tax laws, and reducing the cost and burden of tax administration and compliance to the benefit of taxpayers and governments alike. TEI is firmly committed to maintaining a tax system that works--one that is administrable and with which taxpayers can comply in a cost-efficient and predictable manner.

TEI, as a professional association of in-house tax executives, offers a unique perspective. Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with provisions of the tax law impacting business enterprises, including the provisions concerning PTPs and the determination of qualifying income from minerals and natural resources. Further, our members work for companies involved in a wide variety of industries. Their collective perspectives are broad-based and not tied to any particular special interest group. The diversity, background, and professional training of TEI's members place the organization in a uniquely qualified position from which to comment on the Proposed Regulations.

General Views on the Proposed Regulations

TEI is concerned that the Proposed Regulations fail to capture the complex processes and activities carried on by PTPs. As a result, the Proposed Regulations provide rules that are inconsistent with section 7704(d)(1) (E) and its legislative history, as well as the settled expectations of impacted taxpayers, their investors, and the market--expectations that evolved from prior guidance in which the IRS applied the law (which remains unchanged) to detailed fact patterns thoroughly vetted during the private letter ruling (PLR) process. Some of these PLRs were issued less than two years ago. By effectively revoking established administrative rulings without a clear rationale, the Proposed Regulations damage the credibility of the IRS in the eyes of taxpayers and will have a negative impact on investors in PTPs and the capital markets as a whole. (2)

Our comments are divided into three parts. Part I describes the businesses conducted through PTPs and provides an overview of the evolution of the relevant law. Part II...