Page 2 - Taxation of the Partnership
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
|·||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.