How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.
Master limited partnership issues are expected to be resolved “relatively soon.”
The agency made clearer in May where it plans to draw the line on the types of minerals and natural resource businesses that may operate as master limited partnerships.
Master limited partnerships, or MLPs, are large partnerships whose units are traded on a stock exchange or secondary market. The United States usually taxes publicly-traded companies as corporations. However, it makes an exception for partnerships that receive at least 90% of their gross income each year from passive sources, like interest or dividends, or from activities tied to minerals or natural resources. Such companies are able to operate without having to pay corporate income taxes. Their income is taxed to the owners directly.
The new rules are in the form of proposed regulations that are expected to be finalized soon.
The IRS set off a storm of protests from companies that had received private letter rulings from the agency telling them their activities produce good income, but who now fall on the wrong side of the new line the IRS drew in May. At least 10 to 12 such rulings are at odds with the new rules. Senior members of Congress, including the new chairman of the House tax-writing committee, have also sent the IRS letters to complain.
Seventeen people testified at an IRS hearing in late October.
One area of controversy involves whether making olefins from natural gas liquids should qualify. Congress said, when enacting the MLP statute in 1987, that manufacturing plastics or similar petroleum derivatives should not qualify. Olefins are used to make a range of products. The proposed regulations appear to allow MLPs to earn income from some refinery-grade olefins, like ethylene, that are produced as an adjunct to making gasoline and other fuels, but not from natural gas liquids. Westlake Chemicals and Enterprise Products Partners, two chemical companies that received private letter rulings allowing them to operate as MLPs, urged the IRS at the hearing to focus on whether what goes into the process is a natural resource and not on what comes out.
IRS officials attending the hearing asked at what point something stops being a natural resource. They were also interested in whether small tweaks might be made in the proposed regulations to address the olefins issue. Curt Wilson, an IRS associate chief counsel, said the next day at a conference in New York that he does not know where the IRS will come out on olefins. Clifford Warren, a IRS special counsel, said at a tax conference in Chicago in early November that it is a “rather difficult discussion: when do refining and processing become manufacturing?” He said the engineers with whom the IRS is consulting have expressed a range of opinions.
Another company that testified is SunCoke Energy Partners LP, an MLP that makes coke by baking coal for producing steel. The company has seen its share price drop from $23.63 in early May to around $8 due to weakness in demand for steel and doubts about whether it qualifies to operate as an MLP. SunCoke went public in January 2013 based on a “will” opinion from its counsel that it qualifies to operate as an MLP. It describes coke as a purer form of coal.
Meanwhile, the IRS confirmed in a new private letter ruling that a partnership that owns an LNG regasification terminal and is in the process of expanding the terminal to liquefy US natural gas for export can operate as an MLP. The partnership earns fee income under contracts with suppliers whose LNG or gas it processes. The ruling is Private Letter Ruling 201537007. The IRS made it public in September.
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.