|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 8-K on 03/06/2018|
Treatment of Securities Loans. A unitholder whose common units are the subject of a securities loan (for example, a loan to a short seller to cover a short sale of common units) may be considered as having disposed of those units during the period of the loan and may recognize gain or loss as a result of such deemed disposition. As a result, during this period (i) he would no longer be treated for tax purposes as a partner with respect to those common units, (ii) any of our income, gain, loss or deduction allocated to those units would not be reportable by the lending unitholder, and (iii) any cash distributions received by the lending unitholder as to those units may be treated as ordinary taxable income.
Sidley Austin LLP has not rendered an opinion regarding the tax treatment of a unitholder that enters into a securities loan with respect to its common units. A unitholder desiring to assure its status as a partner and avoid the risk of income recognition from a loan of its common units is urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from borrowing and loaning their common units. The IRS has previously announced that it is studying issues relating to the tax treatment of short sales of partnership interests. Please also read Disposition of Common UnitsRecognition of Gain or Loss.
Tax Rates. Under current law, the highest marginal U.S. federal income tax rate for individuals applicable to ordinary income and long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year) are 37% and 20%, respectively. These rates are subject to change by new legislation at any time.
In addition, a 3.8% net investment income tax applies to certain net investment income earned by individuals, estates and trusts. For these purposes, net investment income generally includes a unitholders allocable share of our income and gain realized by a unitholder from a sale of common units. In the case of an individual, the tax will be imposed on the lesser of (i) the unitholders net investment income or (ii) the amount by which the unitholders modified adjusted gross income exceeds $250,000 (if the unitholder is married and filing jointly or a surviving spouse), $125,000 (if the unitholder is married and filing separately) or $200,000 (in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) the undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins. Prospective unitholders are urged to consult with their own tax advisors as to the impact of the net investment income tax on an investment in our common units.
For taxable years beginning after December 31, 2017, and ending on or before December 31, 2025, an individual unitholder is entitled to a deduction equal to 20% of his qualified business income attributable to us, subject to certain limitations. For purposes of this deduction, a unitholders qualified business income attributable to us is equal to the sum of:
Prospective unitholders should consult their tax advisors regarding the application of the deduction for qualified business income.
Section 754 Election. We have made the election permitted by Section 754 of the Internal Revenue Code. That election is irrevocable without the consent of the IRS. The election generally permits us to adjust a common unit purchasers tax basis in our assets (inside basis) under Section 743(b) of the Internal Revenue Code to reflect his purchase price. This election applies to a person who purchases common units from a selling unitholder but does not apply to a person who purchases common units directly from us. The Section 743(b) adjustment belongs to the purchaser and not to other unitholders. For purposes of this discussion, a unitholders inside basis in our assets will be considered to have two components: (i) his share of our tax basis in our assets (common basis) and (ii) his Section 743(b) adjustment to that basis.