Page 12 - Administrative Matters
SPECTRA ENERGY PARTNERS, LP filed this Form 8-K on 2/21/2018
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.