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Trade Group Warns of Potential MLP Taxation Shift

A trade association that represents publicly traded partnerships has warned its members that the Obama administration is considering corporate-level taxation of pass-through entities, such as master limited partnerships (MLP). Such a change would have significant consequences for the midstream energy sector where numerous companies are MLPs.

The warning came in a confidential memo circulated to the members of the National Association of Publicly Traded Partnerships (NAPTP), which was leaked to Reuters. NAPTP Executive Director Mary Lyman would not share the memo with NGI but confirmed its distribution. As quoted by The Hill, the memo reads in part:

"Treasury Department staff are working on a tax reform proposal that reportedly would include corporation taxation of any pass-through entity with gross receipts of $50 million or more."

The administration is still considering tax reform options, according to a White House spokeswoman.

In an e-mail to NGI, Lyman said, "At this point, there is no public proposal yet; we have simply heard that there is a proposal under discussion as part of corporate tax reform that would tax a broad section of pass-through entities, including MLPs -- everything with gross receipts over $50 million.

"If this does ultimately come out in an administration tax reform proposal, I think it is very unlikely that it would be approved by this Congress."

The issue of corporate vs. pass-through taxation "does come up whenever policymakers are discussing major tax reform," Lyman said. "Corporate taxation of MLPs arose seriously in the 1980s and resulted in the 1987 law [that] governs which companies can operate as MLPs and be taxed as partnerships. It is therefore not surprising that the issue is being revisited."

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