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Tax Reform Impact On Energy? Short Answer: MLPs Are Fine

By on January 21, 2018 in Energy, Oil & Gas, Tax

Taxes - IRS - Internal Revenue ServiceBaker Botts partner Mike Bresson told listeners at the beginning of the law firm’s recent webinar that “Master limited partnerships [MLPs] did just fine on tax reform.”

Joseph Markman, writing in Oil and Gas Investor about the webinar presentation, quoted Bresson: “The first big [change], which is definitely a positive, is a reduction in tax rates,” said Steve Marcus, partner and Dallas-based department chair in taxes. “The corporate tax rate’s been reduced from 35% to 21%.”

Another change, however, may have a slightly negative impact, now that interest deductions are limited. The limitation amounts to about 30% of an MLP’s adjusted taxable income. How this affects the typical MLP depends on its tax shield.

Markman explains: “For an MLP to calculate the 30% limitation on its ability to deduct its own net business interest expense, it must determine its share of ‘excess taxable income’ allocated to it from a subsidiary partnership. An MLP’s unitholder would then determine ‘excess taxable income’ in calculating the limitation with respect to its net business interest expense.”

Read the article.




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