Energy Transfer 2012 Annual Report Download - page 63

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responsive to current market conditions or funding requirements. Additionally, if the current cost recovery mechanisms are changed
or eliminated, the impact of these benefits on operating results could significantly increase.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to
a material amount of entity-level taxation by individual states. If the IRS were to treat us as a corporation for federal income
tax purposes or if we become subject to a material amount of entity-level taxation for state tax purposes, it would substantially
reduce the amount of cash available for distribution to Unitholders.
The anticipated after-tax economic benefit of an investment in our Common Units depends largely on our being treated as a
partnership for federal income tax purposes. We have not requested, and do not plan to request, a ruling from the IRS, with respect
to our classification as a partnership for federal income tax purposes.
Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such
as ours to be treated as a corporation for federal income tax purposes. If we are so treated, we would pay federal income tax on
our taxable income at the corporate tax rate, which is currently a maximum of 35%, and we would likely pay additional state
income taxes as well. Distributions to Unitholders would generally be taxed again as corporate distributions, and none of our
income, gains, losses or deductions would flow through to Unitholders. Because a tax would then be imposed upon us as a
corporation, our cash available for distribution to Unitholders would be substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the anticipated cash flow and after-tax return to the Unitholders, likely causing
a substantial reduction in the value of our Common Units.
The present tax treatment of publicly traded partnerships, including us, or an investment in our Common Units, may be modified
by administrative, legislative or judicial interpretation at any time, causing us to be treated as a corporation for federal income tax
purposes or otherwise subjecting us to entity-level taxation. For example, from time to time, members of the U.S. Congress
propose and consider substantive changes to the existing U.S. federal income tax laws that affect the tax treatment of publicly
traded partnerships. Several states currently impose entity-level taxes on partnerships, including us. Further, because of widespread
state budget deficits and other reasons, several additional states are evaluating ways to subject partnerships to entity level taxation
through the imposition of state income, franchise and other forms of taxation. If any additional states were to impose a tax upon
us as an entity, our cash available for distribution would be reduced. Any modification to the U.S. federal income or state tax
laws, or interpretations thereof, may or may not be applied retroactively. Although we are unable to predict whether any of these
changes or any other proposals will ultimately be enacted, any such changes could negatively impact the value of an investment
in our Common Units.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us
to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the
minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on
us.
The tax treatment of Sunoco Logistics depends on its status as a partnership for federal income tax purposes, as well as its not
being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat Sunoco Logistics as a
corporation for federal income tax purposes or if it were to become subject to a material amount of entity-level taxation for
state tax purposes, it would substantially reduce the amount of cash available for distribution to its unitholders.
The anticipated after-tax economic benefit of our investment in the common units of Sunoco Logistics depends largely on Sunoco
Logistics being treated as a partnership for federal income tax purposes. Sunoco Logistics has not requested, and does not plan
to request, a ruling from the IRS on this matter. The IRS may adopt positions that differ from the ones Sunoco Logistics has taken.
A successful IRS contest of the federal income tax positions Sunoco Logistics takes may impact adversely the market for its
common units, and the costs of any IRS contest will reduce Sunoco Logistics' cash available for distribution to its unitholders. If
Sunoco Logistics were to be treated as a corporation for federal income tax purposes, it would pay federal income tax at the
corporate tax rate, and likely would pay state income tax at varying rates. Distributions to its unitholders generally would be
subject to tax again as corporate distributions. Treatment of Sunoco Logistics as a corporation would result in a material reduction
in its anticipated cash flow and after-tax return to its unitholders. Current law may change so as to cause Sunoco Logistics to be
treated as a corporation for federal income tax purposes or to otherwise subject it to a material amount of entity-level taxation.
States are evaluating ways to subject partnerships to entity level taxation through the imposition of state income, franchise and
other forms of taxation. If any states were to impose a tax on Sunoco Logistics, the cash available for distribution to its unitholders
would be reduced.
As discussed above, the present federal income tax treatment of publicly traded partnerships, including Sunoco Logistics, or our
investment in its common units, may be modified by administrative, legislative or judicial interpretation at any time. Any
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