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IRS Letter Ruling: Income from Hydraulic Fracturing (Fracking) Is Qualifying Income for Tax Purposes in a Publicly Traded Partnership


In a Letter Ruling the IRS ruled that income from a hydraulic fracturing (fracking) activity is qualifying income for tax purposes when earned by a Publicly Traded Partnership.  Under the Internal Revenue Code, a publicly traded partnership is treated as a corporation if under 90% of its income is qualifying income.  Under the specific code section, qualifying income means: “(A) interest, (B) dividends, (C) real property rents, (D) gain from the sale or other disposition of real property (including property described in section 1221(a)(1)), (E) income and gains derived from the refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing of any mineral or natural resource (including fertilizer, geothermal energy, and timber), industrial source carbon dioxide, or the transportation or….”  In the letter ruling, the taxpayer pointed to their activity including “the removal, treatment, recycling, and disposal of waste products from hydraulic fracturing…”  The IRS ruled positively in the taxpayer’s favor.

Editor’s Comment

Because the taxpayer’s business is derived (but not specifically mentioned in black and white letter of The Code) from mining/exploration, they had a bit of concern that the activity may not be on the dot and therefore receive adverse tax treatment.  The counsel made a good call here in asking for a letter ruling on a potentially multi-million dollar venture.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors