Energy Transfer 2013 Annual Report Download - page 57

Table of Contents
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 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.
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 result in a decrease in 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 of depreciation
deductions and certain other items. 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.
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