For a number of years (1997-2004) the Association’s federal efforts were focused on changing a provision in the tax code which makes it difficult for publicly traded partnerships to sell their securities to mutual funds. On October 22, 2004, this goal was achieved when the President signed into law the American Jobs Creation Act (H.R. 4520), P.L. 108-357.

Mutual funds are required to obtain 90 percent of their income from specific sources listed in the tax code. No more than 10 percent of their income can come from other sources, or they will lose their “regulated investment company” tax status. Largely because partnership interests that could be traded on securities markets did not exist when these rules were written, PTP income was not on the list of qualifying sources. This was a deterrent to PTP investment by mutual funds.

Section 331 of the American Jobs Creation Act adds net income derived from an interest in a PTP to the list of sources from which a regulated investment company (RIC) must derive 90% of its income in order to maintain its tax status as a RIC. RICs may now invest freely in PTPs as long as such investments do not constitute more than 25% of their assets, and as long as they do not own more than 10% of any one PTP.

Links to the legislative language of the conference agreement and the statement of managers are can be found in the column to the right. The PTP provision is on page 150 of the legislative language and page 94 of the statement of managers (page 77 of the printed copy). You can also link to answers to the most frequently asked questions about the new law.

Reference Documents