Sunoco 2014 Annual Report Download - page 33

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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.
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 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.
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 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 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 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.