Energy Transfer 2015 Annual Report Download - page 64

Table of Contents
taxable income” and will be taxable to them. Allocations and/or distributions to non-U.S. persons will be reduced by withholding taxes imposed at the
highest effective tax rate applicable to non-U.S. persons, and each non-U.S. person will be required to file United States federal and state income tax returns
and pay tax on their share of our taxable income. If you are a tax exempt entity or non-U.S. person, you should consult your tax advisor before investing in
our common units.
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, Inc. and the ETP 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.
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 business day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge aspects of our
proration method, and, if successful, we would be required to change the allocation of items of income, gain, loss and deduction among our Unitholders.
We generally 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 business day of each month, instead of on the basis of the date a particular unit is transferred. The U.S. Department of the Treasury
recently adopted final Treasury Regulations allowing a similar monthly simplifying convention for taxable years beginning on or after August 3, 2015.
However, such regulations do not specifically authorize all aspects of the proration method we have adopted. If the IRS were to challenge our proration
method, we may be required to change the allocation of items of income, gain, loss and deduction among our Unitholders.
A Unitholder whose units are the subject of a securities loan (e.g. a loan 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 there are no specific rules governing the federal income tax consequences of loaning a partnership interest, a Unitholder whose units are the subject
of a securities loan may be considered as having disposed of the loaned units. In that case, the Unitholder may 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 such disposition. Moreover, during the period of the
loan, 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 of their units are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.
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