Energy Transfer 2012 Annual Report Download - page 64

56
modification to the federal income tax laws and interpretations thereof may or may not be applied retroactively. Moreover, any
such modification could make it more difficult or impossible for Sunoco Logistics to meet the exception which allows publicly
traded partnerships that generate qualifying income to be treated as partnerships (rather than corporations) for U.S. federal income
tax purposes, affect or cause Sunoco Logistics to change its business activities, or affect the tax consequences of our investment
in Sunoco Logistics' common units. Any such changes could negatively impact the value of our investment in Sunoco Logistics'
common units.
If the IRS contests the federal income tax positions we take, the market for our Common Units may be adversely affected and
the costs of any such contest will reduce cash available for distributions to our Unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The
IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings
to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with
the IRS may materially and adversely impact the market for our Common Units and the prices at which they trade. In addition,
the costs of any contest with the IRS will be borne by us reducing the cash available for distribution to our Unitholders.
Unitholders may be required to pay taxes on their share of our income even if they do not receive any cash distributions from
us.
Because our Unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount
than the cash we distribute, Unitholders will be required to pay any federal income taxes and, in some cases, state and local income
taxes on their share of our taxable income even if they receive no cash distributions from us. Unitholders may not receive cash
distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from the taxation
of their share of our taxable income.
Tax gain or loss on disposition of our Common Units could be more or less than expected.
If Unitholders sell their Common Units, they will recognize a gain or loss equal to the difference between the amount realized
and the tax basis in those Common Units. Because distributions in excess of the Unitholder's allocable share of our net taxable
income decrease the Unitholder's tax basis in their Common Units, the amount, if any, of such prior excess distributions with
respect to the units sold will, in effect, become taxable income to the Unitholder if they sell such units at a price greater than their
tax basis in those units, even if the price received is less than their original cost. Furthermore, a substantial portion of the amount
realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation
recapture. In addition, because the amount realized includes a Unitholder's share of our nonrecourse liabilities, if a Unitholder
sells units, the Unitholder may incur a tax liability in excess of the amount of cash received from the sale.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning Common Units that may result in adverse tax
consequences to them.
Investment in Common Units by tax-exempt entities, including employee benefit plans and individual retirement accounts (known
as IRAs) and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to Unitholders
who are organizations exempt from federal income tax, may be taxable to them as “unrelated business taxable income.” Distributions
to non-U.S. persons will be reduced by withholding taxes, generally at the highest applicable effective tax rate, and non-U.S.
persons will be required to file United States federal and state income tax returns and generally pay United States federal and state
income tax on their share of our taxable income.
We have subsidiaries that will be treated as corporations for federal income tax purposes and subject to corporate-level income
taxes.
Even though we (as a partnership for U.S. federal income tax purposes) are not subject to U.S. federal income tax, some of our
operations are currently, and our acquisition of Sunoco and the Holdco restructuring resulted in an increase in the proportion of
our operations that are conducted through subsidiaries that are organized as corporations for U.S. federal income tax purposes.
The taxable income, if any, of subsidiaries that are treated as corporations for U.S. federal income tax purposes, is subject to
corporate-level U.S. federal income taxes, which may reduce the cash available for distribution to us and, in turn, to our unitholders.
If the IRS or other state or local jurisdictions were to successfully assert that these corporations have more tax liability than we
anticipate or legislation was enacted that increased the corporate tax rate, the cash available for distribution could be further
reduced. The income tax return filings positions taken by these corporate subsidiaries require significant judgment, use of estimates,
and the interpretation and application of complex tax laws. Significant judgment is also required in assessing the timing and
amounts of deductible and taxable items. Despite our belief that the income tax return positions taken by these subsidiaries are
fully supportable, certain positions may be successfully challenged by the IRS, state or local jurisdictions.
Table of Contents