Valero 2015 Annual Report Download - page 20

Table of Contents
liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to
our tax liabilities as a result of these audits may subject us to interest and penalties.
.
We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments we use to
hedge our exposure to various types of risk are not effective, we may incur losses. In addition, we may be required to incur additional
costs in connection with future regulation of derivative instruments to the extent it is applicable to us.


One of our subsidiaries acts as the general partner of VLP, a publicly traded master limited partnership. Our control of the general
partner of VLP may increase the possibility of claims of breach of fiduciary duties, including claims of conflicts of interest, related to
VLP. Liability resulting from such claims could have a material adverse effect on our financial position, results of operations, and
liquidity.


We received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that, for U.S. federal income tax
purposes, the Spin-off, except for cash received in lieu of fractional shares, qualified as tax-free under sections 355 and 361 of the U.S.
Internal Revenue Code of 1986, as amended (Code), and that certain internal transactions undertaken in anticipation of the Spin-off
qualified for favorable treatment. The IRS did not rule, however, on whether the Spin-off satisfied certain requirements necessary to
obtain tax-free treatment under section 355 of the Code. Instead, the private letter ruling was based on representations by us that those
requirements were satisfied, and any inaccuracy in those representations could invalidate the private letter ruling. In connection with the
private letter ruling, we also obtained an opinion from a nationally recognized accounting firm, substantially to the effect that, for U.S.
federal income tax purposes, the Spin-off qualified under sections 355 and 361 of the Code. The opinion relied on, among other things,
the continuing validity of the private letter ruling and various assumptions and representations as to factual matters made by CST and us
which, if inaccurate or incomplete in any material respect, would jeopardize the conclusions reached by such counsel in its opinion.
The opinion is not binding on the IRS or the courts, and there can be no assurance that the IRS or the courts would not challenge the
conclusions stated in the opinion or that any such challenge would not prevail. Furthermore, notwithstanding the private letter ruling,
the IRS could determine on audit that the Spin-off or the internal transactions undertaken in anticipation of the Spin-off should be
treated as taxable transactions if it determines that any of the facts, assumptions, representations, or undertakings we or CST have made
or provided to the IRS are incorrect or incomplete, or that the Spin-off or the internal transactions should be taxable for other reasons,
including as a result of a significant change in stock or asset ownership after the Spin-off.
If the Spin-off ultimately were determined to be taxable, each holder of our common stock who received shares of CST common stock
in the Spin-off generally would be treated as receiving a spin-off of property in an amount equal to the fair market value of the shares of
CST common stock received by such holder. Any such spin-off would be a dividend to the extent of our current earnings and profits as
of the end of 2013, and any accumulated earnings and profits. Any amount that exceeded our relevant earnings and profits would be
treated first as a non-taxable return of capital to the extent of such holder’s tax basis in our shares of common stock with any remaining
amount generally being taxed as a capital gain. In addition, we would
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