On Wednesday, June 24, 2015, Senators Chris Coons (D-DE) and Jerry Moran (R-KS), Representatives Ted Poe (R-TX) and Mike Thompson (D-CA), and their co-sponsors introduced the Master Limited Partnerships Parity Act, which would make renewable energy projects eligible for inclusion in MLPs. The proposed legislation is similar to versions introduced in prior Congresses, but it includes some revisions, such as an expansion to cover renewable energy projects that are leased by the MLP to its customers.
Master limited partnerships, or MLPs, use a favorable provision in current tax law that allows a publicly traded entity to be treated as a partnership for federal income tax purposes and thereby avoid federal income tax at the entity level. To qualify for this tax treatment, an MLP must generate at least 90 percent of its income from qualifying sources, such as natural resources, real estate, interest and dividends.
The proposed MLP Parity Act would expand the definition of MLP qualifying income to include certain income from:
- renewable energy projects, including wind, closed and open loop biomass, solar, municipal solid waste, hydropower, marine and hydrokinetic, fuel cells, and combined heat and power
- waste-heat-to-power, carbon capture and storage, and energy-efficient buildings and
- biodiesel, renewable fuels and renewable chemicals.
Enactment of the MLP Parity Act is uncertain at this time, but it has a broad base of political and industry support. Congressional tax writing committees are focused on tax reform, and have been reluctant to refine current tax benefits in the Internal Revenue Code that may be repealed later as part of tax reform. However, due to uncertainties regarding the prospects of tax reform, members of Congress are beginning to evaluate more limited tax legislation packages. Such a package could include member priorities such as the MLP Parity Act. Alternatively, energy legislation could include energy tax provisions such as the MLP Parity Act. Our recommendation is to remain vigilant for such bills, and should they progress, offer your support of them to members of Congress.
The MLP Parity Act, if enacted, would not adversely affect any current MLP. All projects currently eligible for inclusion in an MLP would continue to qualify exactly as under existing law. (However, the IRS has recently proposed regulations that would affect existing MLPs. To download a discussion by Baker Botts MLP tax lawyers on these new proposed regulations, click here.)
To view the press release, summaries and text of the MLP Parity Act, click here.