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U.S. IRS may restart energy partnership approvals in May

April 18, 2014

By Patrick Temple-West

WASHINGTON (Reuters) – The U.S. Internal Revenue Service could resume issuing key tax approvals in May for energy companies that need certainty from the IRS about their favorable tax status as master limited partnerships before going public, lawyers and industry professionals said on Wednesday.

Last week, the IRS said it had temporarily stopped issuing private letter rulings for publicly traded partnerships, including master limited partnerships or MLPs, to consider changing its procedures.

The IRS did not say how long the delay would last, but it could potentially postpone a handful of initial public offerings in the works.

But on Wednesday, an MLP trade group said it has received guidance from the IRS about the duration of the pause.

“My understanding is that the pause is expected to last two or three months,” said Mary Lyman, executive director of the National Association of Publicly Traded Partnerships.

“We hope that proves to be correct and that PLR issuance resumes without significant changes,” Lyman said.

Linda Carlisle, a lawyer for the association, said the PLR pause started in March. The IRS is not expected to issue new regulations for companies seeking MLP status at the end of its pause period, Carlisle said.

An IRS spokesman declined to comment on Wednesday.

The IRS has said it undertook the review “given the proliferation of publicly traded partnerships and changes in the industries in which they tend to operate.”

Last week, SandRidge Energy Inc said an MLP it had considered setting up for its water-disposal business was affected by the IRS action. [ID:nL2N0MZ162]

The MLP structure is limited to businesses in the energy and transportation sectors. These structures are popular in part because they pay no corporate taxes but are taxed at the individual partner level.

In recent years, other companies with businesses that may fall outside the IRS guidelines have successfully won private letter rulings or PLRs and pushed the envelope of what can qualify.

Among those are some oilfield services companies, which have won PLRs by arguing that they are an integral part of the oil and gas production business.

That growing subset of the MLP world triggered the IRS decision to stop issuing new PLRs, experts said.

Once the IRS restarts issuing PLRs for MLPs, some types of companies may still be kept waiting a long while, said Robert Willens, a corporate tax and accounting analyst in New York.

After halting PLRs for real estate investment trusts (REITs) for six months last year, the IRS still has not made determinations for some companies, Willens said.

“Pending rulings have been filed for over a year that haven’t been issued yet,” Willens said of the REITs. “Investors are incredibly frustrated with the IRS’s intransigence,” he said.

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