Subdocument 3 - EX-99.1 - EXHIBIT 99.1
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material U.S.
federal income tax consequences that may be relevant to prospective unitholders and is based upon current provisions of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations thereunder
(the “Treasury Regulations”), and current administrative rulings and court decisions, all of which are subject to change.
Changes in these authorities may cause the federal income tax consequences to a prospective unitholder to vary substantially from
those described below, possibly on a retroactive basis. Unless the context otherwise requires, references in this section to “we”
“us” or “the Partnership” are references to Spectra Energy Partners and its subsidiaries. This section
updates and replaces the section titled “Material United Stated Federal Income Tax Consequences” in the prospectus
and the section titled “Certain United Stated Federal Income Tax Considerations” in the prospectus supplement related
thereto filed on December 8, 2015 pursuant to Rule 424(b)(2) promulgated under the Securities Act of 1933. This section should
be read in conjunction
with the risk factors included under the caption “Tax Risks to Unitholders” beginning on page
40 of our Annual Report on Form 10-K for the year ended December 31, 2017, and any subsequently filed Quarterly Reports on
Legal conclusions contained in this section,
unless otherwise noted, are the opinion of Vinson & Elkins L.L.P. and are based on the accuracy of representations made by
us to them for this purpose. However, this section does not address all federal income tax matters that may affect us or our unitholders,
such as the application of the alternative minimum tax. This section also does not address local taxes, state taxes, non-U.S. taxes,
or other taxes that may be applicable, except to the limited extent that such tax considerations are addressed below under “—State,
Local and Other Tax Considerations.” Furthermore, this section focuses on unitholders who are individual citizens or residents
of the United States (for federal income tax purposes), who have the U.S. dollar as their functional currency, who use the calendar
year as their taxable year, who purchase units in this offering, who do not materially participate in the conduct of our business
activities and who hold such units as capital assets (typically, property that is held for investment). This section has limited
applicability to corporations (including other entities treated as corporations for federal income tax purposes), partnerships
(including other entities treated as partnerships for federal income tax purposes), estates, trusts, non-resident aliens or other
unitholders subject to specialized tax treatment, such as tax-exempt entities, non-U.S. persons, individual retirement accounts
(“IRAs”), employee benefit plans, real estate investment trusts or mutual funds.
Accordingly, we encourage each prospective
unitholder to consult the unitholder’s own tax advisor in analyzing the federal, state, local and non-U.S. tax consequences
that are particular to that unitholder resulting from ownership or disposition of our units and potential changes in applicable
We are relying on the opinions and advice
of Vinson & Elkins L.L.P. with respect to the matters described herein. An opinion of counsel represents only that counsel’s
best legal judgment and does not bind the Internal Revenue Service (the “IRS”) or a court. Accordingly, the opinions
and statements made herein may not be sustained by a court if contested by the IRS. Any such contest of the matters described herein
may materially and adversely impact the market for our units and the prices at which our units trade. In addition, our costs of
any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our
cash available for distribution. Furthermore, the tax consequences of an investment in us may be significantly modified by future
legislative or administrative changes or court decisions, which may be retroactively applied.
For the reasons described below, Vinson
& Elkins L.L.P. has not rendered an opinion with respect to the following federal income tax issues:
|·||the treatment of a unitholder whose units are the subject of a securities loan (e.g., a loan to a short seller to cover a short
sale of units) (please read “—Tax Consequences of Unit Ownership—Treatment of Securities Loans”);|
|·||whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations (please
read “—Disposition of Units—Allocations Between Transferors and Transferees”); and|
|·||whether our method for taking into account Section 743 adjustments is sustainable in certain cases (please read “—Tax
Consequences of Unit Ownership—Section 754 Election” and “—Uniformity of Units”).|
Taxation of the Partnership
We are treated as a partnership for U.S.
federal income tax purposes and, therefore, subject to the discussion below under “—Administrative Matters—Information
Returns and Audit Procedures”, generally will not be liable for entity-level federal income taxes. Instead, as described
below, each of our unitholders will take into account its respective share of our items of income, gain, loss and deduction in
computing its federal income tax liability as if the unitholder had earned such income directly, even if we make no cash distributions
to the unitholder. Distributions we make to a unitholder will not give rise to income or gain taxable to such unitholder, unless
the amount of cash distributed exceeds the unitholder’s adjusted tax basis in its units. Please read “—Tax Consequences
of Unit Ownership—Treatment of Distributions” and “—Disposition of Units”).
Section 7704 of the Code generally provides
that publicly-traded partnerships will be treated as a corporations for federal income tax purposes. However, if 90% or more of
a partnership’s gross income for every taxable year it is publicly-traded consists of “qualifying income,” the
partnership may continue to be treated as a partnership for federal income tax purposes (the “Qualifying Income Exception”).
Qualifying income includes, (i) interest, (ii) dividends, (iii) real property rents within the meaning of Section 856(d) of the
Code, as modified by Section 7704(d)(3) of the Code, (iv) gains from the sale or other disposition of real property, (v) 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”, and (vi) gains from
the sale or other disposition of capital assets (or property described in Section 1231(b) of the Code) held for the production
of income that otherwise constitutes qualifying income. We estimate that less than 5% of our current gross income is not qualifying
income; however, this estimate could change from time to time.
No ruling has been or will be sought from
the IRS with respect to our classification as a partnership for federal income tax purposes or as to the classification of our
partnership and limited liability company operating subsidiaries. Instead we have relied on the opinion of Vinson & Elkins
L.L.P. that, based upon the Code, existing Treasury Regulations, published revenue rulings and court decisions and representations
described below, Spectra Energy partners and our partnership and limited liability company operating subsidiaries will be classified
as a partnerships or disregarded as an entities separate from us for federal income tax purposes.
Vinson & Elkins L.L.P. is of the opinion
that we will be treated as a partnership for federal income tax purposes and each of our operating subsidiaries, will be treated
as a partnership or will be disregarded as an entity separate from us. In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general partner, including, without limitation:
we nor any of our partnership or limited liability company operating subsidiaries have elected or will elect to be treated as a
corporation for federal income tax purposes;
each taxable year since and including the year of our initial public offering, more than 90% of our gross income has been and will
be income of a character that Vinson & Elkins L.L.P. has opined is “qualifying income” within the meaning of Section
7704(d) of the Code; and
hedging transaction that we treat as resulting in qualifying income has been and will be appropriately identified as a hedging
transaction pursuant to applicable Treasury Regulations, and has been and will be associated with oil, natural gas or products
thereof that are held or to be held by us in activities that Vinson & Elkins L.L.P. has opined or will opine result in qualifying
We believe that these representations are
true and will be true in the future.
If we fail to meet the Qualifying Income
Exception, other than a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after
discovery (in which case the IRS may also require us to make adjustments with respect to our unitholders or pay other amounts),
we will be treated as transferring all of our assets, subject to all of our liabilities, to a newly formed corporation, on the
first day of the year in which we fail to meet the Qualifying Income Exception in return for stock in that corporation and then
as distributing that stock to our unitholders in liquidation of their interests in us. This deemed contribution and liquidation
should not result in the recognition of taxable income by our unitholders or us so long as the aggregate amount of our liabilities
does not exceed the adjusted tax basis of our assets. Thereafter, we would be treated as an association taxable as a corporation
for federal income tax purposes.
The present U.S. federal income tax treatment
of publicly traded partnerships, including us, or an investment in our units may be modified by administrative or legislative action
or judicial interpretation at any time. From time to time, members of the U.S. Congress have proposed and considered substantive
changes to the existing federal income tax laws that would affect publicly-traded partnerships. One such legislative proposal would
have eliminated the Qualifying Income Exception upon which we rely for our treatment as a partnership for federal income tax purposes.
In addition, on January 24, 2017, final
regulations regarding which activities give rise to qualifying income (the “Final Regulations”) within the meaning
of Section 7704 of the Code were published in the Federal Register. The Final Regulations are effective as of January 19, 2017,
and apply to taxable years beginning on or after January 19, 2017. We do not believe the Final Regulations affect our ability to
qualify as a publicly traded partnership.
It is possible that a change in law could
affect us and may be applied retroactively. Any such changes could negatively impact the value of an investment in our units. If
for any reason we are taxable as a corporation in any taxable year, our items of income, gain, loss and deduction would be taken
into account by us in determining the amount of our liability for federal income tax, rather than being passed through to our unitholders.
At the state level, several states have
been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise, or other
forms of taxation. Imposition of a similar tax on us in the jurisdictions in which we operate or in other jurisdictions to which
we may expand could substantially reduce our cash available for distribution to our unitholders.
Our taxation as a corporation would materially
reduce the cash available for distribution to unitholders and thus would likely substantially reduce the value of our units. Any
distribution made to a unitholder at a time when we are treated as a corporation would be (i) a taxable dividend to the extent
of our current or accumulated earnings and profits, then (ii) a nontaxable return of capital to the extent of the unitholder’s
adjusted tax basis in its units (determined separately for each unit), and thereafter (iii) taxable capital gain.
The remainder of this discussion is based
on the opinion of Vinson & Elkins L.L.P. that we will be treated as a partnership for federal income tax purposes.
Tax Consequences of Unit Ownership
Limited Partner Status
Unitholders of the Partnership who are
admitted as limited partners of the partnership will be treated as partners of the Partnership for federal income tax purposes.
In addition, assignees who have executed and delivered transfer applications, and are awaiting admission as limited partners, and
unitholders whose units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of
all substantive rights attendant to the ownership of their units will be treated as partners of the Partnership for federal income
As there is no direct or indirect controlling
authority addressing assignees of units who are entitled to execute and deliver transfer applications and thereby become entitled
to direct the exercise of attendant rights, but who fail to execute and deliver transfer applications, Vinson & Elkins L.L.P.’s
opinion does not extend to these persons. Furthermore, a purchaser or other transferee of units who does not execute and deliver
a transfer application may not receive some federal income tax information or reports furnished to record holders of units unless
the units are held in a nominee or street name account and the nominee or broker has executed and delivered a transfer application
for those units.
For a discussion related to the risks of
losing partner status as a result of securities loans, please read “—Treatment of Securities Loans.” Unitholders
who are not treated as partners in us as described above are urged to consult their own tax advisors with respect to the tax consequences
applicable to them under their particular circumstances.
Flow-Through of Taxable Income
Subject to the discussion below under “—Entity-Level
Collections of Unitholder Taxes” and “—Administrative Matters—Information Returns and Audit Procedures”,
with respect to payments we may be required to make on behalf of our unitholders, we will not pay any federal income tax. Rather,
each unitholder will be required to report on its federal income tax return each year its share of our income, gains, losses and
deductions for our taxable year or years ending with or within its taxable year. Consequently, we may allocate income to a unitholder
even if that unitholder has not received a cash distribution.
Basis of Units
A unitholder’s tax basis in its units
initially will be the amount paid for those units increased by the unitholder’s initial allocable share of our liabilities.
That basis generally will be (i) increased by the unitholder’s share of our income and any increases in such unitholder’s
share of our liabilities, and (ii) decreased, but not below zero, by the amount of all distributions to the unitholder, the unitholder’s
share of our losses, any decreases in its share of our liabilities, and the amount of any excess business interest allocated to
the unitholder. The IRS has ruled that a partner who acquires interests in a partnership in separate transactions must combine
those interests and maintain a single adjusted tax basis for all of those interests.
Treatment of Distributions
Distributions made by us to a unitholder
generally will not be taxable to the unitholder, unless such distributions are of cash or marketable securities that are treated
as cash and exceed the unitholder’s tax basis in its units, in which case the unitholder generally will recognize gain taxable
in the manner described below under “—Disposition of Units.”
Any reduction in a unitholder’s share
of our “nonrecourse liabilities” (liabilities for which no partner bears the economic risk of loss) will be treated
as a distribution by us of cash to that unitholder. A decrease in a unitholder’s percentage interest in us because of our
issuance of additional units may decrease such unitholder’s share of our nonrecourse liabilities. For purposes of the foregoing,
a unitholder’s share of our nonrecourse liabilities generally will be based upon such unitholder’s share of the unrealized
appreciation (or depreciation) in our assets, to the extent thereof, with any excess nonrecourse liabilities allocated based on
the unitholder’s share of our profits. Please read “—Disposition of Units.”
A non-pro rata distribution of money or
property (including a deemed distribution as a result of the reallocation of our nonrecourse liabilities described above) may cause
a unitholder to recognize ordinary income if the distribution reduces the unitholder’s share of our “unrealized receivables,”
including depreciation recapture and substantially appreciated “inventory items,” both as defined in Section 751 of
the Code (“Section 751 Assets”). To the extent of such reduction, the unitholder would be deemed to receive its proportionate
share of the Section 751 Assets and exchange such assets with us in return for a portion of the non-pro rata distribution. This
deemed exchange will generally result in the unitholder’s recognition of ordinary income in an amount equal to the excess
of (1) the non-pro rata portion of that distribution over (2) the unitholder’s tax basis (typically zero) in the Section
751 Assets deemed to be relinquished in the exchange.
Limitations on Deductibility of Losses
A unitholder may not be entitled to deduct
the full amount of loss we allocate to it because its share of our losses will be limited to the lesser of (i) the unitholder’s
adjusted tax basis in its units, and (ii) in the case of a unitholder that is an individual, estate, trust or certain types of
closely-held corporations, the amount for which the unitholder is considered to be “at risk” with respect to our activities.
A unitholder will be at risk to the extent of its adjusted tax basis in its units, reduced by (1) any portion of that basis attributable
to the unitholder’s share of our nonrecourse liabilities, (2) any portion of that basis representing amounts otherwise protected
against loss because of a guarantee, stop loss agreement or similar arrangement, and (3) any amount of money the unitholder borrows
to acquire or hold its units, if the lender of those borrowed funds owns an interest in us, is related to another unitholder or
can look only to the units for repayment. A unitholder subject to the at risk limitation must recapture losses deducted in previous
years to the extent that distributions (including distributions deemed to result from a reduction in a unitholder’s share
of nonrecourse liabilities) cause the unitholder’s at risk amount to be less than zero at the end of any taxable year.
Losses disallowed to a unitholder or recaptured
as a result of the basis or at risk limitations will carry forward and will be allowable as a deduction in a later year to the
extent that the unitholder’s adjusted tax basis or at risk amount, whichever is the limiting factor, is subsequently increased.
Upon a taxable disposition of our units, any gain recognized by a unitholder can be offset by losses that were previously suspended
by the at risk limitation but not losses suspended by the basis limitation. Any loss previously suspended by the at risk limitation
in excess of that gain can no longer be used, and will not be available to offset a unitholder’s salary or active business
In addition to the basis and at risk limitations,
a passive activity loss limitation limits the deductibility of losses incurred by individuals, estates, trusts, some closely-held
corporations and personal service corporations from “passive activities” (such as, trade or business activities in
which the taxpayer does not materially participate). The passive loss limitations are applied separately with respect to each publicly-traded
partnership. Consequently, any passive losses we generate will be available to offset only passive income generated by us. Passive
losses that exceed a unitholder’s share of the passive income we generate may be deducted in full when a unitholder disposes
of all of its units in a fully taxable transaction with an unrelated party. The passive activity loss rules are applied after other
applicable limitations on deductions, including the at risk and basis limitations.
For taxpayers other than corporations in
taxable years beginning after December 31, 2017, and before January 1, 2026, an “excess business loss” limitation
further limits the deductibility of losses by such taxpayers. An excess business loss is the excess (if any) of a taxpayer’s
aggregate deductions for the taxable year that are attributable to the trades or businesses of such taxpayer (determined without
regard to the excess business loss limitation) over the aggregate gross income or gain of such taxpayer for the taxable year that
is attributable to such trades or businesses plus a threshold amount. The threshold amount is equal to $250,000 or $500,000 for
taxpayers filing a joint return. Disallowed excess business losses are treated as a net operating loss carryover to the following
tax year. Any losses we generate that are allocated to a unitholder and not otherwise limited by the basis, at risk, or passive
loss limitations will be included in the determination of such unitholder’s aggregate trade or business deductions. Consequently,
any losses we generate that are not otherwise limited will only be available to offset a unitholder’s other trade or business
income plus an amount of non-trade or business income equal to the applicable threshold amount. Thus, except to the extent of the
threshold amount, our losses that are not otherwise limited may not offset a unitholder’s non-trade or business income (such
as salaries, fees, interest, dividends and capital gains). This excess business loss limitation will be applied after the passive
activity loss limitation.
Limitations on Interest Deductions
In general, deductions for interest paid
or accrued on indebtedness properly allocable to a trade or business that would otherwise be deductible in a taxable year beginning
on or after January 1, 2018 are limited to the sum of business interest income and 30% of a business’s “adjusted taxable
income” for such year. For the purposes of this limitation, adjusted taxable income is computed without regard to any
business interest or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction
allowable for depreciation, amortization, or depletion. The vast majority of our trade or business interest deductions are
not expected to be subject to these interest deduction limitations as a result of an exemption that applies to interest deductions
for, among other things, regulated natural gas pipelines.
To the extent our deduction for business
interest is not limited, we will allocate the full amount of our deduction for business interest among our unitholders in accordance
with their percentage interests in us. To the extent our deduction for business interest is limited, the amount of any disallowed
deduction for business interest will also be allocated to each unitholder in accordance with their percentage interest in us, but
such amount of “excess business interest” will not be currently deductible. Subject to certain limitations and adjustments
to a unitholder’s basis in its units, this excess business interest may be carried forward and deducted by a unitholder in
a future taxable year.
In addition to this limitation on the deductibility
of a partnership’s business interest, the deductibility of a non-corporate taxpayer’s “investment interest expense”
is generally limited to the amount of that taxpayer’s “net investment income.” Investment interest expense includes:
|·||interest on indebtedness allocable to property held for investment;|
|·||interest expense allocated against portfolio income; and|
|·||the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent allocable against
The computation of a unitholder’s
investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase
or carry a unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio
income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment
income. Net investment income does not include qualified dividend income (if applicable) or gains attributable to the disposition
of property held for investment. A unitholder’s share of a publicly-traded partnership’s portfolio income and, according
to the IRS, net passive income will be treated as investment income for purposes of the investment interest expense limitation.
Entity-Level Collections of Unitholder Taxes
If we are required or elect under applicable
law to pay any federal, state, local or non-U.S. tax on behalf of any current or former unitholder or our general partner, our
partnership agreement authorizes us to treat the payment as a distribution of cash to the relevant unitholder or general partner.
Where the tax is payable on behalf of all unitholders or we cannot determine the specific unitholder on whose behalf the tax is
payable, our partnership agreement authorizes us to treat the payment as a distribution to all current unitholders. We are authorized
to amend our partnership agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of units and
to adjust later distributions, so that after giving effect to these distributions, the priority and characterization of distributions
otherwise applicable under our partnership agreement is maintained as nearly as is practicable. Payments by us as described above
could give rise to an overpayment of tax on behalf of a unitholder, in which event the unitholder may be entitled to claim a refund
of the overpayment amount. Please read “—Administrative Matters—Information Returns and Audit Procedures”.
Each unitholder is urged to consult its tax advisor to determine the consequences to them of any tax payment we make on its behalf.
Allocation of Income, Gain, Loss and Deduction
In general, if we have a net profit, our
items of income, gain, loss and deduction will be allocated amongst our unitholders and our general partner in accordance with
their percentage interests in us. Specified items of our income, gain, loss and deduction will be allocated under Section 704(c)
of the Code (or the principles of Section 704(c) of the Code) to account for any difference between the adjusted tax basis and
fair market value of our assets at the time such assets are contributed to us and at the time of any subsequent offering of our
units (a “Book-Tax Disparity”). As a result, the federal income tax burden associated with any Book-Tax Disparity immediately
prior to an offering will be borne by our partners holding interests in us prior to such offering. In addition, items of recapture
income will be specially allocated to the extent possible (subject to the limitations described above) to the unitholder who was
allocated the deduction giving rise to that recapture income in order to minimize the recognition of ordinary income by other unitholders.
An allocation of items of our income, gain,
loss or deduction, other than an allocation required by the Code to eliminate a Book-Tax Disparity, will be given effect for federal
income tax purposes in determining a unitholder’s share of an item of income, gain, loss or deduction only if the allocation
has “substantial economic effect.” In any other case, a unitholder’s share of an item will be determined on the
basis of the unitholder’s interest in us, which will be determined by taking into account all the facts and circumstances,
including (i) the unitholder’s relative contributions to us, (ii) the interests of all the partners in profits and losses,
(iii) the interest of all the partners in cash flow and (iv) the rights of all the partners to distributions of capital upon liquidation.
Vinson & Elkins L.L.P. is of the opinion that, with the exception of the issues described in “— Section 754 Election”
and “— Disposition of Units — Allocations Between Transferors and Transferees,” allocations of income,
gain, loss or deduction under our partnership agreement will be given effect for federal income tax purposes.
Treatment of Securities Loans
A unitholder whose units are the subject
of a securities loan (for example, a loan to a “short seller” to cover a short sale of units) may be treated as having
disposed of those units. If so, such unitholder would no longer be treated for tax purposes as a partner with respect to those
units during the period of the loan and may recognize gain or loss as a result of such deemed disposition. As a result, during
this period (i) any of our income, gain, loss or deduction allocated to those units would not be reportable by the lending unitholder,
and (ii) any cash distributions received by the lending unitholder as to those units may be treated as ordinary taxable income.
Due to a lack of controlling authority,
Vinson & Elkins L.L.P. has not rendered an opinion regarding the tax treatment of a unitholder that enters into a securities
loan with respect to its units. A unitholder desiring to assure its status as a partner and avoid the risk of income recognition
from a loan of its units is urged to modify any applicable brokerage account agreements to prohibit its brokers from borrowing
and lending its units. The IRS has announced that it is studying issues relating to the tax treatment of short sales of partnership
interests. Please read “—Disposition of Units—Recognition of Gain or Loss.”
Under current law, the highest marginal
federal income tax rates for individuals applicable to ordinary income and long-term capital gains (generally, gains from the sale
or exchange of certain investment assets held for more than one year) are 37% and 20%, respectively. These rates are subject to
change by new legislation at any time.
In addition, a 3.8% net investment income
tax applies to certain net investment income earned by individuals, estates, and trusts. For these purposes, net investment income
generally includes a unitholder’s allocable share of our income and gain realized by a unitholder from a sale of units. In
the case of an individual, the tax will be imposed on the lesser of (i) the unitholder’s net investment income from all investments,
or (ii) the amount by which the unitholder’s modified adjusted gross income exceeds $250,000 (if the unitholder is married
and filing jointly or a surviving spouse), $125,000 (if the unitholder is married and filing separately) or $200,000 (if the unitholder
is unmarried or in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed
net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket
applicable to an estate or trust begins.
For taxable years beginning after December
31, 2017 and ending on or before December 31, 2025, an individual unitholder is entitled to a deduction equal to 20% of his or
her allocable share of our “qualified business income.” For purposes of this deduction, our “qualified business
income” is equal to the sum of:
|·||the net amount of our U.S. items of income, gain, deduction, and loss to the extent such items are included or allowed in the
determination of taxable income for the year, excluding, however, certain specified types of passive investment income (such
as capital gains and dividends) and certain payments made to the unitholder for services rendered to the Partnership; and|
|·||any gain recognized upon a disposition of our units to the extent such gain is attributable to Section 751 Assets, such as
depreciation recapture and our “inventory items,” and is thus treated as ordinary income under Section 751 of the Code.|
Section 754 Election
We have made the election permitted by
Section 754 of the Code that permits us to adjust the tax basis in each of our assets as to specific purchasers of our units under
Section 743(b) of the Code to reflect the unit purchase price upon subsequent purchases of units. That election is irrevocable
without the consent of the IRS. The Section 743(b) adjustment separately applies to a unitholder who purchases units from another
unitholder based upon the values and adjusted tax basis of each of our assets at the time of the relevant unit purchase, and the
adjustment will reflect the purchase price paid. The Section 743(b) adjustment does not apply to a person who purchases units
directly from us. For purposes of this discussion, a unitholder’s basis in our assets will be considered to have two components:
(1) its share of the tax basis in our assets as to all unitholders and (2) its Section 743(b) adjustment to that
tax basis (which may be positive or negative).
Under our partnership agreement, we are
authorized to take a position to preserve the uniformity of units even if that position is not consistent with applicable Treasury
Regulations. A literal application of Treasury Regulations governing a Section 743(b) adjustment attributable to properties depreciable
under Section 167 of the Code may give rise to differences in the taxation of unitholders purchasing units from us and unitholders
purchasing from other unitholders. If we have any such properties, we intend to adopt methods employed by other publicly traded
partnerships to preserve the uniformity of units, even if inconsistent with existing Treasury Regulations, and Vinson & Elkins
L.L.P. has not opined on the validity of this approach. Please read “—Uniformity of Units.”
The IRS may challenge the positions we
adopt with respect to depreciating or amortizing the Section 743(b) adjustment to preserve the uniformity of units due to the lack
of controlling authority. Because a unitholder’s adjusted tax basis for its units is reduced by its share of our items of
deduction or loss, any position we take that understates deductions will overstate a unitholder’s tax basis in its units,
and may cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “— Disposition
of Units — Recognition of Gain or Loss.” If a challenge to such treatment were sustained, the gain from the sale of
units may be increased without the benefit of additional deductions.
The calculations involved in the Section
754 election are complex and are made on the basis of assumptions as to the value of our assets and other matters. The IRS could
seek to reallocate some or all of any Section 743(b) adjustment we allocated to our assets subject to depreciation to goodwill
or nondepreciable assets. Goodwill, as an intangible asset, is generally amortizable over a longer period of time or under a less
accelerated method than our tangible assets. We cannot assure any unitholder that the determinations we make will not be successfully
challenged by the IRS or that the resulting deductions will not be reduced or disallowed altogether. Should the IRS require a different
tax basis adjustment to be made, and should, in our opinion, the expense of compliance exceed the benefit of the election, we may
seek permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent purchaser of units may
be allocated more income than it would have been allocated had the election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our
taxable year and the accrual method of accounting for federal income tax purposes. Each unitholder will be required to include
in its tax return its share of our income, gain, loss and deduction for each taxable year ending within or with its taxable year.
In addition, a unitholder who has a taxable year ending on a date other than December 31 and who disposes of all of its units following
the close of our taxable year but before the close of its taxable year must include its share of our income, gain, loss and deduction
in income for its taxable year, with the result that it will be required to include in income for its taxable year its share of
more than twelve months of our income, gain, loss and deduction. Please read “—Disposition of Units—Allocations
Between Transferors and Transferees.”
Tax Basis, Depreciation and Amortization
The tax basis of each of our assets will
be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of
these assets. If we dispose of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain, determined
by reference to the amount of depreciation deductions previously taken, may be subject to the recapture rules and taxed as ordinary
income rather than capital gain. Similarly, a unitholder who has taken cost recovery or depreciation deductions with respect to
property we own will likely be required to recapture some or all of those deductions as ordinary income upon a sale of its interest
in us. Please read “—Tax Consequences of Unit Ownership—Allocation of Income, Gain, Loss and Deduction”
and “—Disposition of Units – Recognition of Gain or Loss.”
The costs we incur in offering and selling
our units (called “syndication expenses”) must be capitalized and cannot be deducted currently, ratably or upon our
termination. While there are uncertainties regarding the classification of certain costs as organization expenses, which may be
amortized by us, and as syndication expenses, which may not be amortized by us, the underwriting discounts and commissions we incur
will be treated as syndication expenses. Please read “Disposition of Units – Recognition of Gain or Loss.”
A first-year bonus depreciation deduction
is generally allowable for certain depreciable property acquired and placed in service after September 27, 2017 and before January
1, 2023. However, the vast majority of our property is not expected to be eligible for this bonus depreciation as a result of an
exclusions that applies to property placed in service with respect to, among other things, regulated natural gas pipelines.
Valuation and Tax Basis of Each of Our Properties
The federal income tax consequences of
the ownership and disposition of units will depend in part on our estimates of the relative fair market values and the tax basis
of each of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will
make many of the relative fair market value estimates ourselves. These estimates and determinations of tax basis are subject to
challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or tax basis are later found
to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by a unitholder could
change, and such unitholder could be required to adjust its tax liability for prior years and incur interest and penalties with
respect to those adjustments.
Disposition of Units
Recognition of Gain or Loss
A unitholder will be required to recognize
gain or loss on a sale or exchange of a unit equal to the difference, if any, between the unitholder’s amount realized and
the adjusted tax basis in the unit sold. A unitholder’s amount realized generally will equal the sum of the cash and the
fair market value of other property it receives plus its share of our nonrecourse liabilities with respect to the unit sold or
exchanged. Because the amount realized includes a unitholder’s share of our nonrecourse liabilities, the gain recognized
on the sale or exchange of a unit could result in a tax liability in excess of any cash received from such sale or exchange.
Except as noted below, gain or loss recognized
by a unitholder on the sale or exchange of a unit held for more than one year generally will be taxable as long-term capital gain
or loss. However, gain or loss recognized on the disposition of units will be separately computed and taxed as ordinary income
or loss under Section 751 of the Code to the extent attributable to Section 751 Assets, such as depreciation recapture and our
“inventory items,” regardless of whether such inventory item has substantially appreciated in value. Ordinary income
attributable to Section 751 Assets may exceed net taxable gain realized on the sale or exchange of a unit and may be recognized
even if there is a net taxable loss realized on the sale or exchange of a unit. Thus, a unitholder may recognize both ordinary
income and capital gain or loss upon a sale or exchange of a unit. Net capital loss may offset capital gains and, in the case of
individuals, up to $3,000 of ordinary income per year.
For purposes of calculating gain or loss
on the sale or exchange of a unit, the unitholder’s adjusted tax basis will be adjusted by its allocable share of our income
or loss in respect of its unit for the year of the sale. Furthermore, as described above, the IRS has ruled that a partner who
acquires interests in a partnership in separate transactions must combine those interests and maintain a single adjusted tax basis
for all those interests. Upon a sale or other disposition of less than all of those interests, a portion of that tax basis must
be allocated to the interests sold using an “equitable apportionment” method, which generally means that the tax basis
allocated to the interest sold equals an amount that bears the same relation to the partner’s tax basis in its entire interest
in the partnership as the value of the interest sold bears to the value of the partner’s entire interest in the partnership.
Treasury Regulations under Section 1223
of the Code allow a selling unitholder who can identify units transferred with an ascertainable holding period to elect to use
the actual holding period of the units transferred. Thus, according to the ruling discussed in the paragraph above, a unitholder
will be unable to select high or low basis units to sell or exchange as would be the case with corporate stock, but, according
to the Treasury Regulations, such unitholder may designate specific units sold for purposes of determining the holding period of
the units transferred. A unitholder electing to use the actual holding period of any unit transferred must consistently use that
identification method for all subsequent sales or exchanges of our units. A unitholder considering the purchase of additional units
or a sale or exchange of units purchased in separate transactions is urged to consult its tax advisor as to the possible consequences
of this ruling and application of the Treasury Regulations.
Specific provisions of the Code affect
the taxation of some financial products and securities, including partnership interests, by treating a taxpayer as having sold
an “appreciated” financial position, including a partnership interest with respect to which gain would be recognized
if it were sold, assigned or terminated at its fair market value, in the event the taxpayer or a related person enters into:
|·||an offsetting notional principal contract; or
|·||a futures or forward contract with respect to the partnership
interest or substantially identical property.
Moreover, if a taxpayer has previously
entered into a short sale, an offsetting notional principal contract or a futures or forward contract with respect to the partnership
interest, the taxpayer will be treated as having sold that position if the taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of the Treasury is authorized to issue Treasury Regulations that treat
a taxpayer that enters into transactions or positions that have substantially the same effect as the preceding transactions as
having constructively sold the financial position. Please read “—Tax Consequences of Unit Ownership—Treatment
of Securities Loans.”
Allocations Between Transferors and Transferees
In general, our taxable income or loss
will be determined annually, will be prorated on a monthly basis and will be subsequently apportioned among the unitholders in
proportion to the number of units owned by each of them as of the opening of the applicable exchange on the first business day
of the month (the “Allocation Date”). Nevertheless, we allocate certain deductions
for depreciation of capital additions based upon the date the underlying property is placed in service, and gain or loss realized
on a sale or other disposition of our assets or, in the discretion of the general partner, any other extraordinary item of income,
gain, loss or deduction will be allocated among the unitholders on the Allocation Date in the month in which such income, gain,
loss or deduction is recognized. As a result, a unitholder transferring units may be allocated income, gain, loss and deduction
realized after the date of transfer.
Although simplifying conventions are contemplated
by the Code and most publicly traded partnerships use similar simplifying conventions, existing Treasury Regulations do not specifically
authorize the use of the proration method we have adopted. Accordingly, Vinson & Elkins L.L.P. is unable to opine
on the validity of this method of allocating income and deductions between transferee and transferor unitholders. If the IRS determines
that this method is not allowed under the Treasury Regulations our taxable income or losses could be reallocated among our unitholders.
Under our partnership agreement, we are authorized to revise our method of allocation between transferee and transferor unitholders,
as well as among unitholders whose interests vary during a taxable year, to conform to a method permitted under the Treasury Regulations.
A unitholder who disposes of units prior
to the record date set for a cash distribution for that quarter will be allocated items of our income, gain, loss and deduction
attributable to the month of disposition but will not be entitled to receive a cash distribution for that period.
A unitholder who sells or exchanges any
of its units is generally required to notify us in writing of that transaction within 30 days after the transaction (or, if earlier,
January 15 of the year following the transaction in the case of a seller). Upon receiving such notifications, we are required to
notify the IRS of the transaction and to furnish specified information to the transferor and transferee. Failure to notify us of
a transfer of units may, in some cases, lead to the imposition of penalties. However, these reporting requirements do not apply
to a sale by an individual who is a citizen of the United States and who effects the sale or exchange through a broker who will
satisfy such requirements.
Uniformity of Units
Because we cannot match transferors and
transferees of units and for other reasons, we must maintain uniformity of the economic and tax characteristics of the units to
a purchaser of these units. As a result of the need to preserve uniformity, we may be unable to completely comply with a number
of federal income tax requirements. Any non-uniformity could have a negative impact on the value of our units. Please read “—Tax
Consequences of Unit Ownership—Section 754 Election.”
Our partnership agreement permits our general
partner to take positions in filing our tax returns that preserve the uniformity of our units. These positions may include reducing
the depreciation, amortization or loss deductions to which a unitholder would otherwise be entitled or reporting a slower amortization
of Section 743(b) adjustments for some unitholders than that to which they would otherwise be entitled. Vinson & Elkins L.L.P.
is unable to opine as to the validity of such filing positions.
A unitholder’s adjusted tax basis
in units is reduced by its share of our deductions (whether or not such deductions were claimed on an individual income tax return)
so that any position that we take that understates deductions will overstate the unitholder’s basis in its units, and may
cause the unitholder to understate gain or overstate loss on any sale of such units. Please read “— Disposition of
Units—Recognition of Gain or Loss” and “—Tax Consequences of Unit Ownership—Section 754 Election”
above. The IRS may challenge one or more of any positions we take to preserve the uniformity of our units. If such a challenge
were sustained, the uniformity of units might be affected, and, under some circumstances, the gain from the sale of our units might
be increased without the benefit of additional deductions.
Tax-Exempt Organizations and Other Investors
Ownership of our units by employee benefit
plans and other tax-exempt organizations, as well as by non-resident alien individuals, non-U.S. corporations and other non-U.S.
persons (collectively, “Non-U.S. Unitholders”) raises issues unique to those investors and, as described below, may
have substantial adverse tax consequences to them. Each prospective unitholder that is a tax-exempt entity or a Non-U.S. Unitholder
should consult its tax advisors before investing in our units.
Employee benefit plans and most other tax-exempt
organizations, including IRAs and other retirement plans, are subject to federal income tax on unrelated business taxable income.
Virtually all of our income will be unrelated business taxable income and will be taxable to a tax-exempt unitholder. Tax-exempt
unitholders with more than one unrelated trade or business (including by attribution from the Partnership to the extent it is engaged
in one or more unrelated trade or business) are required to separately compute their unrelated business taxable income with respect
to each unrelated trade or business (including for purposes of determining any net operating loss deduction). As a result, it may
not be possible for tax-exempt unitholders to utilize losses from an investment in the Partnership to offset unrelated business
taxable income from another unrelated trade or business and vice versa.
Non-U.S. Unitholders are taxed by the United
States on income effectively connected with a U.S. trade or business (“effectively connected income”) and on certain
types of U.S.-source non-effectively connected income (such as dividends), unless exempted or further limited by an income tax
treaty. Each Non-U.S. Unitholder will be considered to be engaged in business in the United States because of its ownership of
our units. Furthermore, Non-U.S. Unitholders will be deemed to conduct such activities through a permanent establishment in the
United States within the meaning of an applicable tax treaty. Consequently, each Non-U.S. Unitholder will be required to file federal
tax returns to report its share of our income, gain, loss or deduction and pay federal income tax on its share of our net income
or gain. Moreover, under rules applicable to publicly-traded partnerships, distributions to Non-U.S. Unitholders are subject to
withholding at the highest applicable effective tax rate. Each Non-U.S. Unitholder must obtain a taxpayer identification number
from the IRS and submit that number to our transfer agent on a Form W-8BEN or W-8BEN-E (or other applicable or successor form)
in order to obtain credit for these withholding taxes.
In addition, if a Non-U.S. Unitholder is
classified as a non-U.S. corporation, it will be treated as engaged in a United States trade or business and may be subject to
the U.S. branch profits tax at a rate of 30%, in addition to regular U.S. federal income tax, on its share of our income and gain
as adjusted for changes in the foreign corporation’s “U.S. net equity” to the extent reflected in the corporation’s
earnings and profits. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in
which the foreign corporate unitholder is a “qualified resident.” In addition, this type of unitholder is subject to
special information reporting requirements under Section 6038C of the Code.
A Non-U.S. Unitholder who sells or otherwise
disposes of a unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that unit to the
extent the gain is effectively connected with a U.S. trade or business of the Non-U.S. Unitholder. Gain realized by a Non-U.S.
Unitholder from the sale of its interest in a partnership that is engaged in a trade or business in the United States will be considered
to be “effectively connected” with a U.S. trade or business to the extent that gain that would be recognized upon a
sale by the partnership of all of its assets would be “effectively connected” with a U.S. trade or business. Thus,
all of a Non-U.S. Unitholder’s gain from the sale or other disposition of our units would be treated as effectively connected
with a unitholder’s indirect U.S. trade or business constituted by its investment in us and would be subject to U.S. federal
income tax. As a result of the effectively connected income rules described above, the exclusion from U.S. taxation under the Foreign
Investment in Real Property Tax Act for gain from the sale of partnership units regularly traded on an established securities market
will not prevent a Non-U.S. Unitholder from being subject to U.S. federal income tax on gain from the sale or disposition of its
units to the extent such gain is effectively connected with a U.S. trade or business. We expect substantially all of the gain from
the sale or disposition of our units to be treated as effectively connected with a U.S. trade or business.
Moreover, the transferee of an interest
in a partnership that is engaged in a U.S. trade or business is generally required to withhold 10% of the amount realized by the
transferor unless the transferor certifies that it is not a foreign person, and we are required to deduct and withhold from the
transferee amounts that should have been withheld by the transferees but were not withheld. Because the “amount realized”
includes a partner’s share of the partnership’s liabilities, 10% of the amount realized could exceed the total cash
purchase price for the units. For this and other reasons, the IRS has suspended the application of this withholding rule to open
market transfers of interest in publicly traded partnerships, pending promulgation of regulations that address the amount to be
withheld, the reporting necessary to determine such amount and the appropriate party to withhold such amounts, but it is not clear
if or when such regulations will be issued.
Information Returns and Audit Procedures
We intend to furnish to each unitholder,
within 90 days after the close of each taxable year, specific tax information, including a Schedule K-1, which describes its share
of our income, gain, loss and deduction for our preceding taxable year. In preparing this information, which will not be reviewed
by counsel, we will take various accounting and reporting positions, some of which have been mentioned earlier, to determine each
unitholder’s share of income, gain, loss and deduction. We cannot assure our unitholders that those positions will yield
a result that conforms to all of the requirements of the Code, Treasury Regulations or administrative interpretations of the IRS.
The IRS may audit our federal income tax
information returns. Neither we nor Vinson & Elkins L.L.P. can assure prospective unitholders that the IRS will not successfully
challenge the positions we adopt, and such a challenge could adversely affect the value of our units. Adjustments resulting from
an IRS audit may require each unitholder to adjust a prior year’s tax liability, and may result in an audit of the unitholder’s
own return. Any audit of a unitholder’s return could result in adjustments unrelated to our returns.
Publicly-traded partnerships are treated
as entities separate from their owners for purposes of federal income tax audits, judicial review of administrative adjustments
by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss and deduction are determined
in a partnership proceeding rather than in separate proceedings for each of the partners. Pursuant to the Bipartisan Budget Act
of 2015, for taxable years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it
may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly
from us, unless we elect to have our general partner, unitholders and former unitholders take any audit adjustment into account
in accordance with their interests in us during the taxable year under audit. Similarly, for such taxable years, if the IRS makes
audit adjustments to income tax returns filed by an entity in which we are a member or partner, it may assess and collect any taxes
(including penalties and interest) resulting from such audit adjustment directly from such entity.
Generally, we expect to elect to have our
general partner, unitholders and former unitholders take any such audit adjustment into account in accordance with their interests
in us during the taxable year under audit, but there can be no assurance that such election will be effective in all circumstances.
If we are unable or if it is not economical to have our general partner, unitholders and former unitholders take such audit adjustment
into account in accordance with their interests in us during the taxable year under audit, our then current unitholders may bear
some or all of the tax liability resulting from such audit adjustment, even if such unitholders did not own our units during the
taxable year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties or
interest, our cash available for distribution to our unitholders might be substantially reduced and our current and former unitholders
may be required to indemnify us for any taxes (including any applicable penalties and interest) resulting from such audit adjustments
that were paid on such unitholders’ behalf. These rules are not applicable for taxable years beginning on or prior to December
31, 2017. Congress has proposed changes to the Bipartisan Budget Act, and we anticipate that amendments may be made. Accordingly,
the manner in which these rules may apply to us in the future is uncertain.
Additionally, pursuant to the Bipartisan
Budget Act of 2015, the Code will no longer require that we designate a Tax Matters Partner. Instead, for taxable years beginning
after December 31, 2017, we will be required to designate a partner, or other person, with a substantial presence in the United
States as the partnership representative (“Partnership Representative”). The Partnership Representative will have
the sole authority to act on our behalf for purposes of, among other things, federal income tax audits and judicial review of administrative
adjustments by the IRS. If we do not make such a designation, the IRS can select any person as the Partnership Representative.
We currently anticipate that we will designate our general partner as the Partnership Representative. Further, any actions taken
by us or by the Partnership Representative on our behalf with respect to, among other things, federal income tax audits and judicial
review of administrative adjustments by the IRS, will be binding on us and all of our unitholders.
Additional Withholding Requirements
Withholding taxes may apply to certain
types of payments made to “foreign financial institutions” (as specially defined in the Code) and certain other non-U.S.
entities. Specifically, a 30% withholding tax may be imposed on interest, dividends and other fixed or determinable annual or periodic
gains, profits and income from sources within the United States (“FDAP Income”), or gross proceeds from the sale or
other disposition of any property of a type which can produce interest or dividends from sources within the United States (“Gross
Proceeds”) paid to a foreign financial institution or to a “non-financial foreign entity” (as specially defined
in the Code), unless (i) the foreign financial institution undertakes certain diligence and reporting, (ii) the non-financial foreign
entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial
U.S. owner or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from
these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause
(i) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake
to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such
accounts, and withhold 30% on payments to noncompliant foreign financial institutions and certain other account holders. Foreign
financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these
requirements may be subject to different rules.
Generally these rules apply to current
payments of FDAP Income and will apply to payments of relevant Gross Proceeds made on or after January 1, 2019. Thus, to the
extent we have FDAP Income or we have Gross Proceeds on or after January 1, 2019 that are not treated as effectively connected
with a U.S. trade or business (please read “—Tax-Exempt Organizations and Other Investors”), a unitholder that
is a foreign financial institution or certain other non-U.S. entity, or a person that holds its units through such foreign entities,
may be subject to withholding on distributions they receive from us, or its distributive share of our income, pursuant to the rules
Each prospective unitholder should consult
its own tax advisors regarding the potential application of these withholding provisions to its investment in our units.
Persons who hold an interest in us as a
nominee for another person are required to furnish to us:
|·||the name, address and taxpayer identification number of the beneficial owner and the nominee;|
|·||a statement regarding whether the beneficial owner is:|
|§||a non-U.S. government, an international organization or any wholly-owned agency or instrumentality of either of the foregoing;
|·||the amount and description of units held, acquired or transferred for the beneficial owner; and|
|·||specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from sales.|
Each broker and financial institution is
required to furnish additional information, including whether such broker or financial institution is a U.S. person and specific
information on any units such broker or financial institution acquires, holds or transfers for its own account. A penalty of $260
per failure, up to a maximum of $3,218,500 per calendar year, is imposed by the Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of our units with the information furnished to us.
Certain penalties may be imposed as a result
of an underpayment of tax that is attributable to one or more specified causes, including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial valuation misstatements. No penalty will be imposed, however, for any
portion of an underpayment if it is shown that there was a reasonable cause for the underpayment of that portion and that the taxpayer
acted in good faith regarding the underpayment of that portion. We do not anticipate that any accuracy-related penalties will be
assessed against us.
State, Local and Other Tax Considerations
In addition to federal income taxes, unitholders
may be subject to other taxes, including state and local income taxes, unincorporated business taxes and estate, inheritance or
intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property now or in the future
or in which the unitholder is a resident. We conduct business or own property in many states in the United States. Some of these
states may impose an income tax on individuals, corporations and other entities. As we make acquisitions or expand our business,
we may own property or conduct business in additional states that impose a personal income tax. Although an analysis of those various
taxes is not presented here, each prospective unitholder should consider the potential impact of such taxes on its investment in
A unitholder may be required to file income
tax returns and pay income taxes in some or all of the jurisdictions in which we do business or own property, though such unitholder
may not be required to file a return and pay taxes in certain jurisdictions because its income from such jurisdictions falls below
the jurisdiction’s filing and payment requirement. Further, a unitholder may be subject to penalties for a failure to comply
with any filing or payment requirement applicable to such unitholder. Some of the jurisdictions may require us, or we may elect,
to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding,
the amount of which may be greater or less than a particular unitholder’s income tax liability to the jurisdiction, generally
does not relieve a nonresident unitholder from the obligation to file an income tax return.
IT IS THE RESPONSIBILITY OF EACH UNITHOLDER
TO INVESTIGATE THE LEGAL AND TAX CONSEQUENCES, UNDER THE LAWS OF PERTINENT JURISDICTIONS, OF HIS INVESTMENT IN US. WE STRONGLY
RECOMMEND THAT EACH PROSPECTIVE UNITHOLDER CONSULT, AND DEPEND UPON, ITS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO THOSE
MATTERS. FURTHER, IT IS THE RESPONSIBILITY OF EACH UNITHOLDER TO FILE ALL STATE, LOCAL AND NON-U.S., AS WELL AS U.S. FEDERAL TAX
RETURNS THAT MAY BE REQUIRED OF IT. VINSON & ELKINS L.L.P. HAS NOT RENDERED AN OPINION ON THE STATE, LOCAL, ALTERNATIVE
MINIMUM TAX OR NON-U.S. TAX CONSEQUENCES OF AN INVESTMENT IN US.