Partnership's Income From Chemical Conversion Is Qualifying Income

Third Party Communication: None

This letter responds to a letter, dated January 23, 2012, submitted on behalf of X by X's authorized representative, requesting a ruling under § 7704(d)(1)(E) of the Internal Revenue Code.

X is building a facility ("Facility") that will convert * * * into * * * through dehydrogenation or catalytic cracking. In addition to creating * * * this process will also create * * * ("Byproducts").

X will operate Facility pursuant to long-term * * * agreements ("Agreements"). Under the terms of the Agreements, * * * will deliver * * * to Facility and will receive * * * in accordance with an agreed-upon yield ratio. * * * may purchase the * * * feedstock from X at * * * or from third parties. Customers will pay X a formula-based cash fee for * * * on a monthly basis. X will retain * * * as additional compensation and may, in its sole discretion, retain any * * * produced in excess of the yield ratio.

X requests a ruling that income derived from its conversion of * * * into * * * will constitute qualifying income under § 7704(d)(1)(E).

Section 7704(b) provides that the term "publicly traded partnership" means any partnership if (1) interests in that partnership are traded on an established securities market, or (2) interests in that partnership are readily tradeable on a secondary market (or the substantial equivalent thereof).

Section 7704(c)(1) provides that § 7704(a) does not apply to a publicly traded partnership for any taxable year if such partnership meets the gross income requirements of § 7704(c)(2) for the taxable year and each preceding taxable year beginning after December 31, 1987, during which the partnership (or any predecessor) was in existence.

Section 7704(c)(2) provides that a partnership meets the gross income requirements of § 7704(c)(2) for any taxable year if 90 percent or more of the gross income of the partnership for the taxable year consists of qualifying income.

Section 7704(d)(1)(E) provides that the term "qualifying income" includes income and gains derived from the exploration, development, mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber).

Except as expressly provided herein, no opinion is expressed or implied concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, no opinion is expressed as to whether X meets the 90 percent gross income requirement of § 7704(c)(1) in any taxable year for which this ruling may apply.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.