Energy Transfer 2010 Annual Report Download - page 51

Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a
partnership such as ours to be treated as a corporation for federal income tax purposes. If we are so treated, we
would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of
35%, and we would likely pay additional state income taxes as well. Distributions to Unitholders would generally
be taxed again as corporate distributions, and none of our income, gains, losses or deductions would flow through
to Unitholders. Because a tax would then be imposed upon us as a corporation, our cash available for distribution
to Unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a
material reduction in the anticipated cash flow and after-tax return to the Unitholders, likely causing a substantial
reduction in the value of our Common Units.
The present tax treatment of publicly traded partnerships, including us, or an investment in our Common Units,
may be modified by administrative, legislative or judicial interpretation at any time, causing us to be treated as a
corporation for federal income tax purposes or otherwise subjecting us to entity-level taxation. For example,
recently, members of the U.S. Congress considered substantive changes to the existing U.S. federal income tax
laws that would have affected the tax treatment of certain publicly traded partnerships. Several states currently
impose entity-level taxes on partnerships, including us. Further, because of widespread state budget deficits and
other reasons, several additional 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 additional states were to impose a
tax upon us as an entity, our cash available for distribution would be reduced. Any modification to the U.S.
federal income or state tax laws, or interpretations thereof, may or may not be applied retroactively. Although we
are unable to predict whether any of these changes or any other proposals will ultimately be enacted, any such
changes could negatively impact the value of an investment in our Common Units.
Our Partnership Agreement provides that if a law is enacted or existing law is modified or interpreted in a
manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal,
state or local income tax purposes, the minimum quarterly distribution amount and the target distribution
amounts may be adjusted to reflect the impact of that law on us.
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.
Because our Unitholders will be treated as partners to whom we will allocate taxable income which could be
different in amount than the cash we distribute, 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 decrease the Unitholder’s tax basis in their Common Units, the amount,
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