Energy Transfer 2012 Annual Report Download - page 65

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We treat each purchaser of Common Units as having the same tax benefits without regard to the actual Common Units
purchased. The IRS may challenge this treatment, which could result in a Unitholder owing more tax and may adversely affect
the value of the Common Units.
Because we cannot match transferors and transferees of Common Units and because of other reasons, we will adopt depreciation
and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to
those positions could adversely affect the amount of tax benefits available to our Unitholders. It also could affect the timing of
these tax benefits or the amount of gain from the sale of Common Units and could have a negative impact on the value of our
Common Units or result in audit adjustments to tax returns of our Unitholders. Moreover, because we have subsidiaries that are
organized as C corporations for federal income tax purposes which own units in us, a successful IRS challenge could result in this
subsidiary having more tax liability than we anticipate and, therefore, reduce the cash available for distribution to our partnership
and, in turn, to our Unitholders.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based
upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred.
The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among
our Unitholders.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon
the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The
use of this proration method may not be permitted under existing Treasury Regulations. Recently, however, the Department of
the Treasury and the IRS issued proposed Treasury Regulations that provide a safe harbor pursuant to which a publicly traded
partnership may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders.
Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we have adopted. If the IRS
were to challenge our proration method or new Treasury Regulations were issued, we may be required to change the allocation
of items of income, gain, loss and deduction among our Unitholders.
A Unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as having disposed of
those units. If so, the Unitholder would no longer be treated for tax purposes as a partner with respect to those units during
the period of the loan and may recognize gain or loss from the disposition.
Because a Unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered as having disposed
of the loaned units, the Unitholder may no longer be treated for tax purposes as a partner with respect to those units during the
period of the loan to the short seller and the Unitholder may recognize gain or loss from such disposition. Moreover, during the
period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those units may not be reportable
by the Unitholder and any cash distributions received by the Unitholder as to those units could be fully taxable as ordinary income.
Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged
to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.
We have adopted certain valuation methodologies that may result in a shift of income, gain, loss and deduction between us
and our public Unitholders. The IRS may challenge this treatment, which could adversely affect the value of our Common
Units.
When we issue additional units or engage in certain other transactions, we determine the fair market value of our assets and allocate
any unrealized gain or loss attributable to such assets to the capital accounts of our Unitholders and our General Partner. Although
we may from time to time consult with professional appraisers regarding valuation matters, including the valuation of our assets,
we make many of the fair market value estimates of our assets ourselves using a methodology based on the market value of our
Common Units as a means to measure the fair market value of our assets. Our methodology may be viewed as understating the
value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain Unitholders and our
General Partner, which may be unfavorable to such Unitholders. Moreover, under our current valuation methods, subsequent
purchasers of our Common Units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated
to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or
our allocation of Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of income, gain, loss
and deduction between our General Partner and certain of our Unitholders.
A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being
allocated to our Unitholders. It also could affect the amount of gain on the sale of Common Units by our Unitholders and could
have a negative impact on the value of our Common Units or result in audit adjustments to the tax returns of our Unitholders
without the benefit of additional deductions.
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