Georgia residents may have heard about the proposed regulations issued by the Internal Revenue Service regarding the income of master limited partnerships whose activities pertain to natural resources and minerals. The proposed regulations were issued on May 5 and particularly refer to Section 7704(d)(1)(E) of the Internal Revenue Code for MLPs.
The new proposed regulations offer clarification on the various kinds of income that can qualify and introduce a new method of direction for businesses that deal with natural resources or a particular mineral. Previously, private letter rulings were the main source used to guide these types of businesses in determining if it produces qualifying income.
Under Section 7704(d)(1)(E), qualifying activities are listed as activities whereby businesses produce a qualifying income from exploring, developing, mining or producing, processing, transporting and marketing of natural resources and minerals. Also included are particular support activities considered intrinsic to the listed activities.
The purpose of the proposed regulations is to address those activities performed by companies dealing with natural resources or minerals, such as those that transport or market the natural resource or mineral, or other companies involved in exploring, developing, processing or mining the materials. The regulations do not apply to companies that offer their services to mineral and natural resource-related businesses. However, the income of those companies may be considered qualifying income if their activities are intrinsic in nature and relate to Section 7704(d)(1)(E) activities.
Understanding federal income tax laws can be confusing, and there are hundreds of thousands of pages of regulations interpreting various provisions of the Internal Revenue Code. A tax attorney may be able to assist business owners who are dealing with these types of complex tax issues.
Source: The National Law Review, "MLP Qualifying Income - Treasury and IRS Issue Proposed Regulations," May 6, 2015