Sunoco 2012 Annual Report Download - page 34

month period (a “technical termination”). For purposes of measuring whether the 50 percent threshold was
reached, multiple sales of the same interest were counted only once. We believe that the 50 percent threshold was
exceeded with ETP’s acquisition of Sunoco’s interests in the Partnership. The technical termination does not
affect our classification as a partnership for federal income tax purposes, but instead, we will be treated as a new
partnership for federal income tax purposes. The technical termination resulted in the closing of our taxable year
for all unitholders.
In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the
closing of our taxable year may result in more than twelve months of our taxable income or loss being includable
in the unitholder’s taxable income for the year of termination. As a result of the technical termination, we are
required to file two tax returns (and unitholders could receive two Schedules K-1 if the relief discussed below is
not available) for the calendar year and the cost of the preparation of these returns will be borne by all
unitholders. We are required to make new tax elections after the technical termination, including a new election
under Section 754 of the Internal Revenue Code, and the termination has resulted in a deferral of our deductions
for depreciation. A termination could also result in penalties if we had been unable to determine that the
termination had occurred. Moreover, the technical termination could accelerate the application of, or subject us
to, any tax legislation enacted before the technical termination. The IRS has recently announced a publicly traded
partnership technical termination relief procedure whereby if a publicly traded partnership that has technically
terminated requests publicly traded partnership technical termination relief and the IRS grants such relief, among
other things, the partnership will only have to provide one Schedule K-1 to unitholders for the calendar year
notwithstanding two partnership tax years. We are in the process of petitioning the IRS for this technical
termination relief.
Our 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 will be
different in amount than the cash we distribute, our 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. Our 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 result from that income.
Tax gain or loss on disposition of our limited partner units could be more or less than expected.
If our unitholders sell their limited partner units, they will recognize a gain or loss equal to the difference
between the amount realized and their tax basis in those limited partner units. Prior distributions to our
unitholders in excess of the total net taxable income the unitholder was allocated for a unit, which decreased their
tax basis in that unit, will, in effect, become taxable income to our unitholders if the limited partner unit is sold at
a price greater than their tax basis in that limited partner unit, even if the price they receive is less than their
original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary
income. In addition, if our unitholders sell their units, they may incur a tax liability in excess of the amount of
cash received from the sale.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may
result in adverse tax consequences to them.
Investment in common units by tax-exempt entities, such as individual retirement accounts (IRAs), and non-
U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that
are exempt from federal income tax, including individual retirement accounts and other retirement plans, will be
unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced
by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file
U.S. federal tax returns and pay tax on their share of our taxable income.
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