Some of the highlights of these changes include:
1. They no longer provide an “exclusive list” of activities that qualify, providing more future flexibility to taxpayers
2. They treat olefins produced outside refineries (e.g., at steam crackers) as qualifying
3. They retain the treatment of certain oilfield services activities as qualifying
4. They provide transition relief through 2027 for activities that do not qualify under the final regulations but as to which the MLP previously received a favorable private letter ruling from the IRS or that the MLP historically treated as qualifying
5. They treat the coking of coal as non qualifying
6. They retain the treatment of methanol as non qualifying
7. They simplify the analysis of the qualifying character of refinery products by referring to a refinery product list prepared by the US Energy Information Administration
8. They abandon the restrictive view of “processing” that only permits “physical” changes to the product and of “refining” that require use of a particular depreciation method as to the equipment used in the activity
9. They reserve on the question whether income from hedging pricing risk as to commodities is qualifying
10. They clarify the fact that the following activities qualify:
- LNG liquefaction and regasification
- Retail propane transportation
- Pipeline compression services
- Sale of RINS
- Reimbursement of costs relating to a qualify activity, such as pipeline construction costs by a pipeline customer
- Oil and gas royalties
11. They treat production of activated carbon as non qualifying
Baker Botts is a leader in working with global clients on Master Limited Partnerships and partners Mike Bresson and Richard Husseini are available to discuss the implications of these new rules and regulations.
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