US Treasury Reviews Increased Use of MLP Structure

The US Treasury Department is considering the increased use by US companies of the master limited partnership (MLP) as a business structure, according to a department spokesperson quoted by the Reuters news agency.

The comment came shortly after the biggest US pipeline company, Houston-based Kinder Morgan, which has been a pioneering user of the MLP, said that it plans to consolidate into a single corporation, folding together its existing organisation of several master limited partnerships (MLPs).

The Treasury statement, sent in an email, was in response to questions from Reuters following Kinder Morgan’s announcement. “We at Treasury are looking into the effects of these transactions on future tax revenues,” the spokesperson said.

“Instances where the tax base may be eroded serve as a reminder of why we need Congress to enact business tax reform that broadens the tax base and lowers tax rates.”

Reuters’ report suggested that Kinder Morgan’s investors had grown concerned that the tax-advantaged MLP structure popularised by the company was hurting its growth and was overly complicated.

The restructure will see the company consolidate its MLPs Kinder Morgan Energy Partners and El Paso Pipeline Partners with Kinder Morgan Management and organise into a single C-corporation.

The move represented a turning point for the rise of MLPs in the US, which are publicly traded but pay no corporate income tax, unlike C-corporations which are more familiar to investors.

MLP status has been limited by the Internal Revenue Service (IRS) to certain kinds of businesses, including oil and gas companies and real estate investment trusts. However, a range of other businesses in recent years have attempted to use the MLP structure.

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