Energy Transfer 2010 Annual Report Download - page 53

A Unitholder whose units are loaned 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 a Unitholder whose units are loaned to a “short seller” to cover a short sale of units may be considered
as having disposed of the loaned units, the Unitholder may no longer be treated for tax purposes as a partner with
respect to those units during the period of the loan to the short seller and the Unitholder may recognize gain or
loss from such disposition. Moreover, during the period of the loan to the short seller, 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 to a short seller are urged to
modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.
We have adopted certain valuation methodologies that may result in a shift of income, gain, loss and
deduction between us and our public Unitholders. The IRS may challenge this treatment, which could
adversely affect the value of our Common Units.
When we issue additional units or engage in certain other transactions, we determine the fair market value of our
assets and allocate any unrealized gain or loss attributable to such assets to the capital accounts of our
Unitholders and our General Partner. Although we may from time to time consult with professional appraisers
regarding valuation matters, including the valuation of our assets, we make many of the fair market value
estimates of our assets ourselves using a methodology based on the market value of our Common Units as a
means to measure the fair market value of our assets. Our methodology may be viewed as understating the value
of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain Unitholders
and our General Partner, which may be unfavorable to such Unitholders. Moreover, under our current valuation
methods, subsequent purchasers of our Common Units may have a greater portion of their Internal Revenue Code
Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets.
The IRS may challenge our valuation methods, or our allocation of Section 743(b) adjustment attributable to our
tangible and intangible assets, and allocations of income, gain, loss and deduction between our General Partner
and certain of our Unitholders.
A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income
or loss being allocated to our Unitholders. It also could affect the amount of gain on the sale of Common Units
by our Unitholders and could have a negative impact on the value of our Common Units or result in audit
adjustments to the tax returns of our Unitholders without the benefit of additional deductions.
The sale or exchange of 50% or more of our capital and profit interests during any twelve month period will
result in the termination of our partnership for federal income tax purposes.
We will be considered technically terminated for federal income tax purposes if there is a sale or exchange of
50% or more of the total interests in our capital and profits within a twelve-month period. For purposes of
determining whether the 50% threshold has been met, multiple sales of the same unit will be counted only once.
Our technical termination would, among other things, result in the closing of our taxable year for all Unitholders
which would require us to file two federal partnership tax returns for one fiscal year, and could result in a
deferral of depreciation deductions allowable in computing our taxable income. In the case of a Unitholder
reporting on a taxable year other than a calendar year, the closing of our taxable year may also result in more
than twelve months of our taxable income or loss being includable in such Unitholder’s taxable income for the
year of termination. Our termination currently would not affect our classification as a partnership for federal
income tax purposes. We would be treated as a new partnership for tax purposes on the technical termination
date, and would be required to make new tax elections and could be subject to penalties if we were unable to
determine in a timely manner that a termination occurred.
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