(Adds IRS spokesman, background, byline)
By Kevin Drawbaugh
WASHINGTON Aug 11 The U.S. Treasury Department
is looking into increased use by companies of the master limited
partnership (MLP) as a business structure, a department
spokesperson said on Monday, hours after a pioneering user
turned its back on the MLP.
Houston-based Kinder Morgan Inc, the biggest U.S.
pipeline company, said it will consolidate into a single
corporation, folding together its existing organization of
several master limited partnerships (MLPs).
The Treasury statement, sent in an email, came in answer to
questions from Reuters following Kinder Morgan's news.
"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."
Kinder Morgan's investors had grown concerned that the
tax-advantaged MLP structure popularized by the company was
hurting its growth and was too complicated.
Under the terms of its restructuring, it will consolidate
its MLPs Kinder Morgan Energy Partners and El Paso
Pipeline Partners LP with Kinder Morgan Management LLC
and organize into a single C-corporation.
The move represented a turning point for the rise of MLPs,
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
to certain kinds of businesses, including oil and gas companies
and real estate investment trusts. But a range of other
businesses in recent years have tried to use the MLP structure.
The IRS, which answers to the Treasury Department, said in
early April that it had temporarily stopped issuing private
letter rulings (PLRs) that companies often seek to get the
agency's blessing when setting up new MLPs.
IRS Commissioner John Koskinen told reporters that the
agency had imposed a "pause" on the rulings so it could review
the qualifications for MLPs. An IRS spokesman said on Monday
that the pause remains in place.
(Reporting by Kevin Drawbaugh; Editing by Howard Goller, David
Gregorio and Bernard Orr)