In order to receive partnership tax treatment, publicly traded partnerships are required to obtain 90 percent of their income from specific activities outlined in section 7704 of the tax code, including “natural resource activities.” (Click here for a more detailed discussion of this requirement). Natural resources for this purpose are the traditional resources: oil, gas, and minerals.

With alternative fuels becoming an important part of our energy mix, MLPs could play an important role in the storage and transportation of such renewable fuels as ethanol and biodiesel. Until last year, however, these activities were included in the definition of “natural resource activities” that generate qualifying income for MLPs.

The MLPA began working in 2007 to add activities related to renewable fuels to the qualifying income definition. We gained the support of the Chairman and Ranking Minority member of the Senate Finance Committee, Sens. Max Baucus and Charles Grassley, who added the provision to their energy tax packages; however, various political problems prevented the energy legislation from being enacted. We also won the support of Sens. Tom Harkin (D-IA) and Richard Lugar (R-IN), who introduced the Biofuels Pipeline Act of 2008 to make the transportation, storage, and marketing of biofuels qualifying income for MLPs under section 7704(d)(1)(E). An identical bill, H.R. 6805, was introduced in the House by Reps. Joe Donnelly (D-IN), Leonard Boswell (D-IA), Brad Ellsworth (D-IN) and Baron Hill (D-IN).

Ultimately, the provisions that the Finance Committee leadership had included in their energy tax bills were folded into the economic stimulus legislation that was passed at the end of 2008, the Emergency Economic Stabilization Act (EESA) (P.L. 110-343). Qualifying income now includes income and gains from the transportation or storage of alcohol and biodiesel fuel mixtures; various alternative fuels; neat alcohol not derived from alcohol, gas, or coal or having a proof under 190; and neat biodiesel (EESA section 208). The EESA also added income and gains from industrial source carbon dioxide to qualifying income (section 116).

Reference Documents