Page 10 - Allocations Between Transferors and Transferees
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
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.