Energy Transfer 2015 Annual Report Download - page 63

Table of Contents
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. Recently enacted legislation alters the procedures for assessing and collecting taxes due for
taxable years beginning after December 31, 2017, in a manner that could substantially reduce cash available for distribution to you.
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.
Recently enacted legislation applicable to us for taxable years beginning after December 31, 2017 alters the procedures for auditing large partnerships and
also alters the procedures for assessing and collecting taxes due (including applicable penalties and interest) as a result of an audit. Unless we are eligible to
(and choose to) elect to issue revised Schedules K-1 to our partners with respect to an audited and adjusted return, the IRS may assess and collect taxes
(including any applicable penalties and interest) directly from us in the year in which the audit is completed under the new rules. If we are required to pay
taxes, penalties and interest as the result of audit adjustments, cash available for distribution to our Unitholders may be substantially reduced. In addition,
because payment would be due for the taxable year in which the audit is completed, Unitholders during that taxable year would bear the expense of the
adjustment even if they were not Unitholders during the audited taxable year.
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.
In response to current market conditions, we may engage in transactions to delever the Partnership and manage our liquidity that may result in income and
gain to our Unitholders without a corresponding cash distribution. For example, if we sell assets and use the proceeds to repay existing debt or fund capital
expenditures, you may be allocated taxable income and gain resulting from the sale without receiving a cash distribution. Further, taking advantage of
opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result “cancellation of
indebtedness income” (also referred to as “COD income”) being allocated to our Unitholders as taxable income. Unitholders may be allocated COD income,
and income tax liabilities arising therefrom may exceed cash distributions. The ultimate effect of any such allocations will depend on the Unitholder's
individual tax position with respect to its units. Unitholders are encouraged to consult their tax advisors with respect to the consequences to them of COD
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. 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.
A substantial portion of the amount realized from the sale of your units, whether or not representing gain, may be taxed as ordinary income to you due to
potential recapture items, including depreciation recapture. Thus, you may recognize both ordinary income and capital loss from the sale of your units if the
amount realized on a sale of your units is less than your adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of
individuals, up to $3,000 of ordinary income per year. In the taxable period in which you sell your units, you may recognize ordinary income from our
allocations of income and gain to you prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale
of units.
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,
including IRAs and other retirement plans, will be “unrelated business
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