Page 9 - Valuation and Tax Basis of Each of Our Properties
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
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.