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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-A/A
(Amendment No. 1)
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ENTERPRISE PRODUCTS PARTNERS L.P.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State of incorporation or organization)
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76-0568219
(I.R.S. Employer Identification No.) |
1100 Louisiana Street, 10th Floor
Houston, Texas 77002
(Address of principal executive offices and zip code)
Securities to be registered pursuant to Section 12(b) of the Act:
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Title of each class
to be so registered:
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Name of each exchange on which
each class is to be registered: |
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Common Units representing limited partner interests
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New York Stock Exchange |
If this form relates to the registration of a class of securities pursuant to Section 12(b) of the
Exchange Act and is effective pursuant to General Instruction A.(c), check the following
box.ý
If this Form relates to the registration of a class of securities pursuant to Section 12(g) of the
Exchange Act and is effective pursuant to General Instruction A.(d), check the following
box.o
Securities act registration statement file number to which this form relates: 333-52537
Securities to be registered pursuant to Section 12(g) of the Act: None
This Amendment No. 1 amends and restates the Registration Statement on Form 8-A filed by the
Registrant on July 21, 1998 relating to the Registrants common units representing limited partner
interests.
Item 1. Description of Registrants Securities to be Registered.
DESCRIPTION OF OUR COMMON UNITS
Common Units
The common units registered hereunder represent limited partner interests in Enterprise
Products Partners L.P. (the partnership, we or us) and entitle holders thereof to the rights
and privileges specified in the partnerships Fifth Amended and Restated Agreement of Limited
Partnership dated effective as of August 8, 2005 (which we refer to as our partnership
agreement). A description of the common units is set forth below. The following summary does not
purport to be complete, and reference is made to the more detailed provisions of the partnerships
Certificate of Limited Partnership, as amended to date, and its partnership agreement, which are
filed as exhibits to this Registration Statement on Form 8-A/A (this Registration Statement).
Generally, our common units represent limited partner interests that entitle the holders to
participate in our cash distributions and to exercise the rights and privileges available to
limited partners under our partnership agreement. For a description of the relative rights and
preferences of holders of common units and our general partner in and to cash distributions, please
read Cash Distribution Policy elsewhere in this
Registration Statement.
Our outstanding common units are listed on the NYSE under the symbol EPD. Any additional
common units we issue will also be listed on the NYSE.
The transfer agent and registrar for our common units is Mellon Investor Services LLC.
Meetings/ Voting
Each holder of common units is entitled to one vote for each common unit on all matters
submitted to a vote of the unitholders.
Status as Limited Partner or Assignee
Except as described below under Limited Liability, the common units will be fully paid,
and unitholders will not be required to make additional capital contributions to us.
Each purchaser of our common units must execute a transfer application whereby the purchaser
requests admission as a substituted limited partner and makes representations and agrees to
provisions stated in the transfer application. If this action is not taken, a purchaser will not be
registered as a record holder of common units on the books of our transfer agent or issued a common
unit certificate. Purchasers may hold common units in nominee accounts.
An assignee, pending its admission as a substituted limited partner, is entitled to an
interest in us equivalent to that of a limited partner with respect to the right to share in
allocations and distributions, including liquidating distributions. Our general partner will vote
and exercise other powers attributable to common units owned by an assignee who has not become a
substituted limited partner at the written direction of the assignee. Transferees who do not
execute and deliver transfer applications will be treated neither as assignees nor as record
holders of common units and will not receive distributions, federal income tax allocations or
reports furnished to record holders of common units. The only right the transferees will have is
the right to admission as a substituted limited partner in respect of the transferred common units
upon execution of a transfer application in respect of the common units. A nominee or broker who
has executed a transfer application with respect to common units held in street name or nominee
accounts will receive distributions and reports pertaining to its common units.
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Limited Liability
Assuming that a limited partner does not participate in the control of our business within the
meaning of the Delaware Revised Uniform Limited Partnership Act (the Delaware Act) and that he
otherwise acts in conformity with the provisions of our partnership agreement, his liability under
the Delaware Act will be limited, subject to some possible exceptions, generally to the amount of
capital he is obligated to contribute to us in respect of his units plus his share of any
undistributed profits and assets.
Under the Delaware Act, a limited partnership may not make a distribution to a partner to the
extent that at the time of the distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to partners on account of their partnership
interests and liabilities for which the recourse of creditors is limited to specific property of
the partnership, exceed the fair value of the assets of the limited partnership.
For the purposes of determining the fair value of the assets of a limited partnership, the
Delaware Act provides that the fair value of the property subject to liability of which recourse of
creditors is limited shall be included in the assets of the limited partnership only to the extent
that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides
that a limited partner who receives a distribution and knew at the time of the distribution that
the distribution was in violation of the Delaware Act is liable to the limited partnership for the
amount of the distribution for three years from the date of the distribution.
Reports and Records
As soon as practicable, but in no event later than 120 days after the close of each fiscal
year, our general partner will mail or furnish to each unitholder of record (as of a
record date selected by our general partner) an annual report containing our audited financial
statements for the past fiscal year. These financial statements will be prepared in accordance with
generally accepted accounting principles. In addition, no later than
90 days after the close of
each quarter (except the fourth quarter), our general partner will
mail or furnish to
each unitholder of record (as of a record date selected by our general partner) a report containing
our unaudited financial statements and any other information required by law.
Our general partner will use all reasonable efforts to furnish each unitholder of record
information reasonably required for tax reporting purposes within 90 days after the close of each
fiscal year. Our general partners ability to furnish this summary tax information will depend on
the cooperation of unitholders in supplying information to our general partner. Each unitholder
will receive information to assist him in determining his U.S. federal and state and Canadian
federal and provincial tax liability and filing his U.S. federal and state and Canadian federal and
provincial income tax returns.
A limited partner can, for a purpose reasonably related to the limited partners interest as a
limited partner, upon reasonable demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each partner; |
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a copy of our tax returns; |
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information as to the amount of cash and a description and statement of the
agreed value of any other property or services, contributed or to be
contributed by each partner and the date on which each became a partner; |
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copies of our partnership agreement, our certificate of limited partnership,
amendments to either of them and powers of attorney which have been executed
under our partnership agreement; |
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information regarding the status of our business and financial condition; and |
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any other information regarding our affairs as is just and reasonable. |
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Our general partner may, and intends to, keep confidential from the limited partners trade
secrets and other information the disclosure of which our general partner believes in good faith is
not in our best interest or which we are required by law or by agreements with third parties to
keep confidential.
CASH DISTRIBUTION POLICY
Distributions of Available Cash
General. Within approximately 45 days after the end of each quarter, we will distribute all of
our available cash to unitholders of record on the applicable record date.
Definition of Available Cash. Available cash is defined in our partnership agreement and
generally means, with respect to any calendar quarter, all cash on hand at the end of such quarter:
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less the amount of cash reserves that is necessary or appropriate in the reasonable
discretion of the general partner to: |
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provide for the proper conduct of our business; |
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comply with applicable law or any debt
instrument or other agreement (including
reserves for future capital expenditures and
for our future credit needs); or |
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provide funds for distributions to unitholders
and our general partner in respect of any one
or more of the next four quarters; |
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plus all cash on hand on the date of determination of available cash for
the quarter resulting from working capital borrowings made after the end
of the quarter. Working capital borrowings are generally borrowings that
are made under our credit facilities and in all cases are used solely
for working capital purposes or to pay distributions to partners. |
Operating Surplus and Capital Surplus
General. Cash distributions are characterized as distributions from either operating surplus
or capital surplus. We distribute available cash from operating surplus differently than available cash from capital
surplus.
Definition of Operating Surplus. Operating surplus is defined in the partnership agreement and
generally means:
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our cash balance on July 31, 1998, the closing date of our initial
public offering of common units (excluding $46.5 million to fund
certain capital commitments existing at such closing date); plus |
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all of our cash receipts since the closing of our initial public
offering, excluding cash from interim capital transactions such as
borrowings that are not working capital borrowings, sales of
equity and debt securities and sales or other disposition of
assets for cash, other than inventory, accounts receivable and
other assets sold in the ordinary course of business or as part of
normal retirements or replacements of assets; plus |
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up to $60.0 million of cash from interim capital transactions; plus |
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less |
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all of our operating expenditures since the closing of our initial
public offering, including the repayment of working capital
borrowings, but not the repayment of other borrowings, and
including maintenance capital expenditures; less |
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the amount of cash reserved that we deem necessary or advisable to
provide funds for future operating expenditures. |
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Definition of Capital Surplus. Capital surplus is generally generated only by borrowings
(other than borrowings for working capital purposes), sales of debt and equity securities and sales
or other dispositions of assets for cash (other than inventory, accounts receivable and other
assets disposed of in the ordinary course of business).
Characterization of Cash Distributions. To avoid the difficulty of trying to determine whether
available cash we distribute is from operating surplus or from capital surplus, all available cash
we distribute from any source will be treated as distributed from operating surplus until the sum
of all available cash distributed since July 31, 1998 equals the operating surplus as of the end of
the quarter prior to such distribution. Any available cash in excess of such amount (irrespective
of its source) will be deemed to be from capital surplus and distributed accordingly.
If available cash from capital surplus is distributed in respect of each common unit in an
aggregate amount per common unit equal to the $11.00 initial public offering price of the common
units, the distinction between operating surplus and capital surplus will cease, and all
distributions of available cash will be treated as if they were from operating surplus. We do not
anticipate that there will be significant distributions from capital surplus.
Distributions of Available Cash from Operating Surplus
Commencing with the quarter ending on September 30, 2003, we will make distributions of
available cash from operating surplus with respect to any quarter in the following manner:
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first, 98% to all common unitholders, pro rata and 2% to the general
partner, until there has been distributed in respect of each unit an
amount equal to the minimum quarterly distribution of $0.225; and |
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thereafter, in the manner described in Incentive Distributions below. |
Incentive Distributions
Incentive distributions represent the right to receive an increasing percentage of quarterly
distributions of available cash from operating surplus after the minimum quarterly distribution and
the target distribution levels have been achieved. For any quarter for which available cash from
operating surplus is distributed to the common unitholders in an amount equal to the minimum
quarterly distribution of $0.225 per unit on all units, then any additional available cash from
operating surplus in respect of such quarter will be distributed among the common unitholders and
the general partner in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to the general partner,
until the common unitholders have received a total of $0.253 for such quarter in
respect of each outstanding unit (the First Target Distribution); |
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second, 85% to all common unitholders, pro rata, and 15% to the general partner,
until the unitholders have received a total of $0.3085 for such quarter in respect
of each outstanding unit (the Second Target Distribution); and |
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thereafter, 75% to all common unitholders, pro rata, and 25% to the general partner. |
Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be Made. We will make distributions of available
cash from capital surplus in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to
the general partner, until we have distributed, in respect
of each outstanding common unit issued in our initial
public offering, available cash from capital surplus in an
aggregate amount per common unit equal to the initial unit
price of $11.00; and |
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thereafter, all distributions of available cash from
capital surplus will be distributed as if they were from
operating surplus. |
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Effect of a Distribution from Capital Surplus. Our partnership agreement treats a distribution
of capital surplus on a common unit as the repayment of the common unit price from its initial
public offering, which is a return of capital. The initial public offering price less any
distributions of capital surplus per common unit is referred to as the unrecovered initial common
unit price. Each time a distribution of capital surplus is made on a common unit, the minimum
quarterly distribution and the target distribution levels for all units will be reduced in the same
proportion as the corresponding reduction in the unrecovered initial common unit price. Because
distributions of capital surplus will reduce the minimum quarterly distribution, after any of these
distributions are made, it may be easier for our general partner to receive incentive
distributions. However, any distribution by us of capital surplus before the unrecovered initial
common unit price is reduced to zero cannot be applied to the payment of the minimum quarterly
distribution.
Once we distribute capital surplus on a common unit in any amount equal to the unrecovered
initial common unit price, it will reduce the minimum quarterly distribution and the target
distribution levels to zero and it will make all future distributions of available cash from operating surplus, with 25%
being paid to the holders of units, as applicable, and 75% to our general partner.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to reductions of the minimum quarterly distribution and target distribution levels
made upon a distribution of available cash from capital surplus, if we combine our units into fewer
units or subdivide our units into a greater number of units, we will proportionately adjust:
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the minimum quarterly distribution; |
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the target distribution levels; and |
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the unrecovered initial common unit price. |
For example, in the event of a two-for-one split of the common units (assuming no prior
adjustments), the minimum quarterly distribution, each of the target distribution levels and the
unrecovered capital of the common units would each be reduced to 50% of its initial level.
In addition, if legislation is enacted or if existing law is modified or interpreted in a
manner that causes us to become taxable as a corporation or otherwise subject to taxation as an
entity for federal, state or local income tax purposes, then we will reduce the minimum quarterly
distribution and the target distribution levels by multiplying the same by one minus the sum of the
highest effective federal corporate income tax rate that could apply and any increase in the
effective overall state and local income tax rates. For example, if we became subject to a maximum
effective federal, state and local income tax rate of 35%, then the minimum quarterly distribution
and the target distribution levels would each be reduced to 65% of their previous levels.
Distributions of Cash upon Liquidation
If we dissolve in accordance with the partnership agreement, we will sell or otherwise dispose
of our assets in a process called a liquidation. We will first apply the proceeds of liquidation to
the payment of our creditors in the order of priority provided in the partnership agreement and by
law and, thereafter, we will distribute any remaining proceeds to the common unitholders and our
general partner in accordance with their respective capital account balances as so adjusted.
Manner of Adjustments for Gain. The manner of the adjustment is set forth in the partnership
agreement. Upon our liquidation, we will allocate any net gain (or unrealized gain attributable to
assets distributed in kind to the partners) as follows:
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first, to the general partner and the holders of common units having negative balances in their capital accounts to the extent
of and in proportion to such negative balances: |
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second, 98% to the holders of common units, pro rata, and 2% to the general partner, until the capital account |
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for each common unit is equal to the sum of
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the unrecovered capital in respect of such common unit; plus |
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the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs. |
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third, 98% to all common unitholders, pro rata, and 2% to the general partner, until there has been allocated under this
paragraph third an amount per unit equal to: |
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the sum of the excess of the First Target Distribution per unit over the minimum quarterly
distribution per unit for each quarter of our existence; less |
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the cumulative amount per unit of any distributions of available cash from operating surplus in
excess of the minimum quarterly distribution per unit that were distributed 98% to the unitholders,
pro rata, and 2% to the general partner for each quarter of our existence; |
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fourth, 85% to all common unitholders, pro rata, and 15% to the general
partner, until there has been allocated under this paragraph fourth an
amount per unit equal to: |
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the sum of the
excess of the Second
Target Distribution
per unit over the
First Target
Distribution per
unit for each
quarter of our
existence; less |
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the cumulative
amount per unit of
any distributions of
available cash from
operating surplus in
excess of the First
Target Distribution
per unit that were
distributed 85% to
the unitholders, pro
rata, and 15% to the
general partner for
each quarter of our
existence; and |
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thereafter, 75% to all common unitholders, pro rata, and 25% to the general partner. |
Manner of Adjustments for Losses. Upon our liquidation, any loss will generally be allocated
to the general partner and the unitholders as follows:
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first, 98% to the holders of common units in proportion to
the positive balances in their respective capital accounts
and 2% to the general partner, until the capital accounts
of the common unitholders have been reduced to zero; and |
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thereafter, 100% to the general partner. |
Adjustments to Capital Accounts. In addition, interim adjustments to capital accounts will be
made at the time we issue additional partnership interests or make distributions of property. Such
adjustments will be based on the fair market value of the partnership interests or the property
distributed and any gain or loss resulting therefrom will be allocated to the common unitholders
and the general partner in the same manner as gain or loss is allocated upon liquidation. In the
event that positive interim adjustments are made to the capital accounts, any subsequent negative
adjustments to the capital accounts resulting from the issuance of additional partnership interests
in us, distributions of property by us, or upon our liquidation, will be allocated in a manner
which results, to the extent possible, in the capital account balances of the general partner
equaling the amount that would have been the general partners capital account balances if no prior
positive adjustments to the capital accounts had been made.
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DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership agreement. Our
amended and restated partnership agreement has been filed with the Commission. The following
provisions of our partnership agreement are summarized elsewhere in this Registration Statement:
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distributions of our available cash are described under Cash Distribution Policy; |
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rights of holders of common units are described under Description of Our Common Units; and |
In addition, allocations of taxable income and other matters are described under Material Tax
Consequences below in this Registration Statement.
Purpose
Our purpose under our partnership agreement is to serve as a partner of our operating
partnership and to engage in any business activities that may be engaged in by our operating
partnership or that are approved by our general partner. The partnership agreement of our
operating partnership provides that it may engage in any activity that was engaged in by our
predecessors at the time of our initial public offering or reasonably related thereto and any other
activity approved by our general partner.
Power of Attorney
Each limited partner, and each person who acquires a unit from a unitholder and executes and
delivers a transfer application, grants to our general partner and, if appointed, a liquidator, a
power of attorney to, among other things, execute and file documents required for our
qualification, continuance or dissolution. The power of attorney also grants the authority for the
amendment of, and to make consents and waivers under, our partnership agreement.
Voting Rights
Unitholders will not have voting rights except with respect to the following matters, for
which our partnership agreement requires the approval of the holders of a majority of the units,
unless otherwise indicated:
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the merger of our partnership or a sale, exchange or other disposition of all or substantially all of our assets; |
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the withdrawal of our general partner prior to December 31, 2008 (requires a majority of the units outstanding,
excluding units held by our general partner and its affiliates); |
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the removal of our general partner (requires 60% of the outstanding units, including units held by our general
partner and its affiliates); |
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the election of a successor general partner; |
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the dissolution of our partnership or the reconstitution of our partnership upon dissolution; |
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approval of certain actions of our general partner (including the transfer by the general partner of its general
partner interest under certain circumstances); and |
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certain amendments to the partnership agreement, including any amendment that would cause us to be treated as an
association taxable as a corporation. |
Under the partnership agreement, our general partner generally will be permitted to effect,
without the approval of unitholders, amendments to the partnership agreement that do not adversely
affect unitholders.
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Reimbursements of Our General Partner
Our general partner does not receive any compensation for its services as our general partner.
It is, however, entitled to be reimbursed for all of its costs incurred in managing and operating
our business. Our partnership agreement provides that our general partner will determine the
expenses that are allocable to us in any reasonable manner determined by our general partner in its
sole discretion.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited number of additional limited
partner interests and other equity securities that are equal in rank with or junior to our common
units on terms and conditions established by our general partner in its sole discretion without the
approval of any limited partners.
It is possible that we will fund acquisitions through the issuance of additional common units
or other equity securities. Holders of any additional common units we issue will be entitled to
share equally with the then-existing holders of common units in our cash distributions. In
addition, the issuance of additional partnership interests may dilute the value of the interests of
the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of our partnership agreement, we may also
issue additional partnership interests that, in the sole discretion of our general partner, may
have special voting rights to which common units are not entitled.
Our general partner has the right, which it may from time to time assign in whole or in part
to any of its affiliates, to purchase common units or other equity securities whenever, and on the
same terms that, we issue those securities to persons other than our general partner and its
affiliates, to the extent necessary to maintain their percentage interests in us that existed
immediately prior to the issuance. The holders of common units will not have preemptive rights to
acquire additional common units or other partnership interests in us.
Amendments to Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by our general partner. Any
amendment that materially and adversely affects the rights or preferences of any type or class of
limited partner interests in relation to other types or classes of limited partner interests or our
general partner interest will require the approval of at least a majority of the type or class of
limited partner interests or general partner interests so affected. However, in some circumstances,
more particularly described in our partnership agreement, our general partner may make amendments
to our partnership agreement without the approval of our limited partners or assignees to reflect:
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a change in our names, the location of our principal place of business, our
registered agent or our registered office; |
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the admission, substitution, withdrawal or removal of partners; |
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a change to qualify or continue our qualification as a limited partnership or a
partnership in which our limited partners have limited liability under the laws of
any state or to ensure that neither we, our operating partnership, nor any of our
subsidiaries will be treated as an association taxable as a corporation or otherwise
taxed as an entity for federal income tax purposes; |
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a change that does not adversely affect our limited partners in any material respect; |
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a change to (i) satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute or (ii) facilitate
the trading of our limited partner interests or comply with any rule, regulation,
guideline or requirement of any national securities exchange on which our limited
partner interests are or will be listed for trading; |
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change in our fiscal year or taxable year;
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a change in our fiscal year or taxable year and any changes that are necessary or
advisable as a result of a |
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an amendment that is necessary to prevent us, or our general partner or its
directors, officers, trustees or agents from being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or plan asset regulations adopted under the Employee Retirement Income
Security Act of 1974, as amended; |
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an amendment that is necessary or advisable in connection with the authorization or
issuance of any class or series of our securities; |
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any amendment expressly permitted in our partnership agreement to be made by our
general partner acting alone; |
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an amendment effected, necessitated or contemplated by a merger agreement approved
in accordance with our partnership agreement; |
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an amendment that is necessary or advisable to reflect, account for and deal with
appropriately our formation of, or investment in, any corporation, partnership,
joint venture, limited liability company or other entity other than our operating
partnership, in connection with our conduct of activities permitted by our
partnership agreement; |
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a merger or conveyance to effect a change in our legal form; or |
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any other amendments substantially similar to the foregoing. |
Withdrawal or Removal of Our General Partner
Our general partner has agreed not to withdraw voluntarily as our general partner prior to
December 31, 2008 without obtaining the approval of the holders of a majority of our outstanding
common units, excluding those held by our general partner and its affiliates, and furnishing an
opinion of counsel stating that such withdrawal (following the selection of the successor general
partner) would not result in the loss of the limited liability of any of our limited partners or of
a member of our operating partnership or cause us or our operating partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such).
On or after December 31, 2008, our general partner may withdraw as general partner without
first obtaining approval of any unitholder by giving 90 days written notice, and that withdrawal
will not constitute a violation of our partnership agreement. In addition, our general partner may
withdraw without unitholder approval upon 90 days notice to our limited partners if at least 50%
of our outstanding common units are held or controlled by one person and its affiliates other than
our general partner and its affiliates.
Upon the voluntary withdrawal of our general partner, the holders of a majority of our
outstanding common units, excluding the common units held by the withdrawing general partner and
its affiliates, may elect a successor to the withdrawing general partner. If a successor is not
elected, or is elected but an opinion of counsel regarding limited liability and tax matters cannot
be obtained, we will be dissolved, wound up and liquidated, unless within 90 days after that
withdrawal, the holders of a majority of our outstanding units, excluding the common units held by
the withdrawing general partner and its affiliates, agree to continue our business and to appoint a
successor general partner.
Our general partner may not be removed unless that removal is approved by the vote of the
holders of not less than 60% of our outstanding units, including units held by our general partner
and its affiliates, and we receive an opinion of counsel regarding limited liability and tax
matters. In addition, if our general partner is removed as our general partner under circumstances
where cause does not exist and units held by our general partner and its affiliates are not voted
in favor of such removal, our general partner will have the right to convert its general partner
interest into common units or to receive cash in exchange for such interests. Cause is narrowly
defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment
finding the general partner liable for
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actual fraud, gross negligence or willful or wanton misconduct in its capacity as our general
partner. Any removal of this kind is also subject to the approval of a successor general partner by
the vote of the holders of a majority of our outstanding common units, including those held by our
general partner and its affiliates.
While our partnership agreement limits the ability of our general partner to withdraw, it
allows the general partner interest to be transferred to an affiliate or to a third party in
conjunction with a merger or sale of all or substantially all of the assets of our general partner.
In addition, our partnership agreement expressly permits the sale, in whole or in part, of the
ownership of our general partner. Our general partner may also transfer, in whole or in part, the
common units it owns.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued as a new limited partnership,
the person authorized to wind up our affairs (the liquidator) will, acting with all the powers of
our general partner that the liquidator deems necessary or desirable in its good faith judgment,
liquidate our assets. The proceeds of the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and the creation of a reserve for contingent liabilities; and |
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then, to all partners in accordance with the positive balance in the respective capital accounts. |
Under some circumstances and subject to some limitations, the liquidator may defer liquidation
or distribution of our assets for a reasonable period of time. If the liquidator determines that a
sale would be impractical or would cause a loss to our partners, our general partner may distribute
assets in kind to our partners.
Transfer of Ownership Interests in Our General Partner
At any time, the owners of our general partner may sell or transfer all or part of their
ownership interests in the general partner without the approval of the unitholders.
Change of Management Provisions
Our partnership agreement contains the following specific provisions that are intended to
discourage a person or group from attempting to remove our general partner or otherwise change
management:
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any units held by a person that owns 20% or more of any
class of units then outstanding, other than our general
partner and its affiliates, cannot be voted on any matter;
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the partnership agreement contains provisions limiting the
ability of unitholders to call meetings or to acquire
information about our operations, as well as other
provisions limiting the unitholders ability to influence
the manner or direction of management. |
Limited Call Right
If at any time our general partner and its affiliates own 85% or more of the issued and
outstanding limited partner interests of any class, our general partner will have the right to
purchase all, but not less than all, of the outstanding limited partner interests of that class
that are held by non-affiliated persons. The record date for determining ownership of the limited
partner interests would be selected by our general partner on at least 10 but not more than 60
days notice. The purchase price in the event of a purchase under these provisions would be the
greater of (1) the current market price (as defined in our partnership agreement) of the limited
partner interests of the class as of the date three days prior to the date that notice is mailed to
the limited partners as provided in the partnership agreement and (2) the highest cash price paid
by our general partner or any of its affiliates for any limited partner interest of the class
purchased within the 90 days preceding the date our general partner mails notice of its election to
purchase the units.
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Indemnification
Under our partnership agreement, in most circumstances, we will indemnify our general partner,
its affiliates and their officers and directors to the fullest extent permitted by law, from and
against all losses, claims or damages any of them may suffer by reason of their status as general
partner, officer or director, as long as the person seeking indemnity acted in good faith and in a
manner believed to be in or not opposed to our best interest. Any indemnification under these
provisions will only be out of our assets. Our general partner shall not be personally liable for,
or have any obligation to contribute or loan funds or assets to us to enable us to effectuate any
indemnification. We are authorized to purchase insurance against liabilities asserted against and
expenses incurred by persons for our activities, regardless of whether we would have the power to
indemnify the person against liabilities under our partnership agreement.
Registration Rights
Under our partnership agreement, we have agreed to register for resale under the Securities
Act and applicable state securities laws any common units or other partnership securities proposed
to be sold by our general partner or any of its affiliates or their assignees if an exemption from
the registration requirements is not otherwise available. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts and commissions.
MATERIAL TAX CONSEQUENCES
This section is a summary of the material tax consequences that may be relevant to prospective
unitholders who are individual citizens or residents of the United States. This section is based
upon current provisions of the Internal Revenue Code, existing and proposed regulations and current
administrative rulings and court decisions, all of which are subject to change. Later changes in
these authorities may cause the tax consequences to vary substantially from the consequences
described below.
The following discussion does not comment on all federal income tax matters affecting us or
our unitholders. Moreover, the discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application to corporations, estates, trusts,
nonresident aliens or other unitholders subject to specialized tax treatment, such as tax-exempt
institutions, foreign persons, individual retirement accounts (IRAs), real estate investment trusts
(REITs) or mutual funds. Accordingly, we recommend that each prospective unitholder consult, and
depend on, his own tax advisor in analyzing the federal, state, local and foreign tax consequences
particular to him of the ownership or disposition of common units.
No ruling has been or will be requested from the IRS regarding our status as a partnership for
federal income tax purposes. Accordingly, the statements made here may not be sustained by a court
if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact
the market for the common units and the prices at which common units trade. In addition, the costs
of any contest with the IRS will be borne directly or indirectly by the unitholders and the general
partner. Furthermore, the tax treatment of us, or of an investment in us, may be significantly
modified by future legislative or administrative changes or court decisions. Any modifications may
or may not be retroactively applied.
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Partnership Status
A partnership is not a taxable entity and incurs no federal income tax liability. Instead,
each partner of a partnership is required to take into account his share of items of income, gain,
loss and deduction of the partnership in computing his federal income tax liability, regardless of
whether cash distributions are made to him by the partnership. Distributions by a partnership to a
partner are generally not taxable unless the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that publicly traded partnerships will, as
a general rule, be taxed as corporations. However, an exception, referred to as the Qualifying
Income Exception, exists with respect to publicly traded partnerships of which 90% or more of the
gross income for every taxable year consists of qualifying income. Qualifying income includes
income and gains derived from the exploration, development, mining or production, processing,
refining, transportation and marketing of any mineral or natural resource. Other types of
qualifying income include interest other than from a financial business, dividends, gains from the
sale of real property and gains from the sale or other disposition of assets held for the
production of income that otherwise constitutes qualifying income. We estimate that less than 3% of
our current gross income is not qualifying income; however, this estimate could change from time to
time.
No ruling has been or will be sought from the IRS and the IRS has made no determination as to
our status or the status of Enterprise Products Operating L.P. (the Operating Partnership) as
partnerships for federal income tax purposes. We believe that we and the Operating Partnership
will be classified as partnerships for federal income tax purposes because, among other things:
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Neither we nor the Operating Partnership has or will elect to be treated as a corporation;
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For each taxable year, we believe (or expect) that more than 90% of our gross income has
been (or will be) qualifying income within the meaning of Section 7704(d) of the Internal Revenue
Code. |
If we fail to meet the Qualifying Income Exception, other than a failure that is determined by
the IRS to be inadvertent and that is cured within a reasonable time after discovery, we will be
treated as if we had transferred all of our assets, subject to liabilities, to a newly formed
corporation, on the first day of the year in which we fail to meet the Qualifying Income Exception,
in return for stock in that corporation, and then distributed that stock to the unitholders in
liquidation of their interests in us. This contribution and liquidation should be tax-free to
unitholders and us so long as we, at that time, do not have liabilities in excess of the tax basis
of our assets. Thereafter, we would be treated as a corporation for federal income tax purposes.
If we were taxable as a corporation in any taxable year, either as a result of a failure to
meet the Qualifying Income Exception or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being passed through to the unitholders, and
our net income would be taxed to us at corporate rates. In addition, any distribution made to a
unitholder would be treated as either taxable dividend income, to the extent of our current or
accumulated earnings and profits, or, in the absence of earnings and profits, a nontaxable return
of capital, to the extent of the unitholders tax basis in his common units, or taxable capital
gain, after the unitholders tax basis in his common units is reduced to zero. Accordingly,
taxation as a corporation would result in a material reduction in a unitholders cash flow and
after-tax return and thus would likely result in a substantial reduction of the value of the units.
The discussion below is based on our assumption that we will be classified as a partnership
for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of Enterprise Products Partners L.P. will be
treated as partners of Enterprise Products Partners L.P. for federal income tax purposes. Also,
assignees who have executed and delivered transfer applications, and are awaiting admission as
limited partners, and unitholders whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all substantive rights attendant to the
ownership of their common units, will be treated as partners of Enterprise for federal income tax
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purposes. A purchaser or other transferee of common units who does not execute and deliver a
transfer application may not receive some federal income tax information or reports furnished to
record holders of common units unless the common units are held in a nominee or street name account
and the nominee or broker has executed and delivered a transfer application for those common units.
A beneficial owner of common units whose units have been transferred to a short seller to
complete a short sale would appear to lose his status as a partner with respect to those units for
federal income tax purposes. Please read Tax Consequences of Unit Ownership Treatment of Short
Sales.
Income, gains, deductions or losses would not appear to be reportable by a unitholder who is
not a partner for federal income tax purposes, and any cash distributions received by a unitholder
who is not a partner for federal income tax purposes would therefore be fully taxable as ordinary
income. We strongly recommend that prospective unitholders consult their own tax advisors with
respect to their status as partners in Enterprise Products Partners L.P. for federal income tax
purposes.
Tax Consequences of Unit Ownership
Flow-through of Taxable Income. We do not pay any federal income tax. Instead, each unitholder
is required to report on his income tax return his share of our income, gains, losses and
deductions without regard to whether corresponding cash distributions are received by him.
Consequently, we may allocate income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in income his allocable share of our
income, gains, losses and deductions for our taxable year or years ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by us to a unitholder generally will not be taxable
to the unitholder for federal income tax purposes to the extent of his tax basis in his common
units immediately before the distribution. Our cash distributions in excess of a unitholders tax
basis in his common units generally will be considered to be gain from the sale or exchange of the
common units, taxable in accordance with the rules described under Disposition of Common Units
below. Any reduction in a unitholders share of our liabilities for which no partner, including our
general partner, bears the economic risk of loss, known as nonrecourse liabilities, will be
treated as a distribution of cash to that unitholder. To the extent our distributions cause a
unitholders at risk amount to be less than zero at the end of any taxable year, he must
recapture any losses deducted in previous years. Please read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us because of our issuance of additional
common units will decrease his share of our nonrecourse liabilities, and thus will result in a
corresponding deemed distribution of cash. A non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of his tax basis in his common units, if the
distribution reduces the unitholders share of our unrealized receivables, including depreciation
recapture, and/or substantially appreciated inventory items, both as defined in the Internal
Revenue Code, and collectively, Section 751 Assets. To that extent, he will be treated as having
been distributed his proportionate share of the Section 751 Assets and having exchanged those
assets with us in return for the non-pro rata portion of the actual distribution made to him. This
latter deemed exchange will generally result in the unitholders realization of ordinary income,
which will equal the excess of (a) the non-pro rata portion of that distribution over (b) the
unitholders tax basis for the share of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholders initial tax basis for his common units will be the
amount he paid for the common units plus his share of our nonrecourse liabilities. That basis will
be increased by his share of our income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero, by distributions from us, by the
unitholders share of our losses, by any decreases in his share of our nonrecourse liabilities and
by his share of our expenditures that are not deductible in computing taxable income and are not
required to be capitalized. A unitholder will have no share of our debt which is recourse to the
general partner, but will have a share, generally based on his share of profits, of our nonrecourse
liabilities. Please read Disposition of Common Units Recognition of Gain or Loss.
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Limitations on Deductibility of Losses. The deduction by a unitholder of his share of our
losses will be limited to the tax basis in his units and, in the case of an individual unitholder
or a corporate unitholder, if more than 50% of the value of the corporate unitholders stock is
owned directly or indirectly by five or fewer individuals or some tax-exempt organizations, to the
amount for which the unitholder is considered to be at risk with respect to our activities, if
that amount is less than his tax basis. A unitholder must recapture losses deducted in previous
years to the extent that distributions cause his at risk amount to be less than zero at the end of
any taxable year. Losses disallowed to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable to the extent that his tax basis or at risk amount,
whichever is the limiting factor, is subsequently increased. Upon the taxable disposition of a
unit, any gain recognized by a unitholder can be offset by losses that were previously suspended by
the at risk limitation but may not be offset by losses suspended by the basis limitation. Any
excess loss above that gain previously suspended by the at risk or basis limitations is no longer
utilizable.
In general, a unitholder will be at risk to the extent of the tax basis of his units,
excluding any portion of that basis attributable to his share of our nonrecourse liabilities,
reduced by any amount of money he borrows to acquire or hold his units, if the lender of those
borrowed funds owns an interest in us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase or decrease as the tax basis of the
unitholders units increases or decreases, other than tax basis increases or decreases attributable
to increases or decreases in his share of our nonrecourse liabilities.
The passive loss limitations generally provide that individuals, estates, trusts and some
closely-held corporations and personal service corporations can deduct losses from passive
activities, which are generally corporate or partnership activities in which the taxpayer does not
materially participate, only to the extent of the taxpayers income from those passive activities.
The passive loss limitations are applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will be available to offset only our
passive income generated in the future and will not be available to offset income from other
passive activities or investments, including our investments or investments in other publicly
traded partnerships, or salary or active business income. Passive losses that are not deductible
because they exceed a unitholders share of income we generate may be deducted in full when he
disposes of his entire investment in us in a fully taxable transaction with an unrelated party. The
passive activity loss rules are applied after other applicable limitations on deductions, including
the at risk rules and the basis limitation.
A unitholders share of our net income may be offset by any suspended passive losses, but it
may not be offset by any other current or carryover losses from other passive activities, including
those attributable to other publicly traded partnerships.
Limitations on Interest Deductions. The deductibility of a non-corporate taxpayers
investment interest expense is generally limited to the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for investment; |
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our interest expense attributed to portfolio income; and |
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the portion of interest expense incurred to purchase or carry an interest
in a passive activity to the extent attributable to portfolio income. |
The computation of a unitholders investment interest expense will take into account interest
on any margin account borrowing or other loan incurred to purchase or carry a unit. Net investment
income includes gross income from property held for investment and amounts treated as portfolio
income under the passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not include gains
attributable to the disposition of property held for investment. The IRS has indicated that net
passive income earned by a publicly traded partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our portfolio income will be treated as
investment income.
Entity-Level Collections. If we are required or elect under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder or the general partner or any former
unitholder, we are authorized to pay those taxes from our funds. That payment, if made, will be
treated as a distribution of cash to the partner on
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whose behalf the payment was made. If the payment is made on behalf of a person whose identity
cannot be determined, we are authorized to treat the payment as a distribution to all current
unitholders. We are authorized to amend the partnership agreement in the manner necessary to
maintain uniformity of intrinsic tax characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority and characterization of distributions
otherwise applicable under the partnership agreement is maintained as nearly as is practicable.
Payments by us as described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner would be required to file a claim in order to obtain
a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a net profit, our items
of income, gain, loss and deduction will be allocated among the general partner and the unitholders
in accordance with their percentage interests in us. At any time that incentive distributions are
made to the general partner, gross income will be allocated to the recipients to the extent of
these distributions. If we have a net loss for the entire year, that loss will be allocated first
to the general partner and the unitholders in accordance with their percentage interests in us to
the extent of their positive capital accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be allocated to account for the
difference between the tax basis and fair market value of our property immediately prior to the
time we issue additional units, referred to in this discussion as Contributed Property. The
effect of these allocations to a unitholder purchasing common units in an offering will be
essentially the same as if the tax basis of our assets were equal to their fair market value at the
time of the offering. In addition, items of recapture income will be allocated to the extent
possible to the partner who was allocated the deduction giving rise to the treatment of that gain
as recapture income in order to minimize the recognition of ordinary income by some unitholders.
Finally, although we do not expect that our operations will result in the creation of negative
capital accounts, if negative capital accounts nevertheless result, items of our income and gain
will be allocated in an amount and manner to eliminate the negative balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction, other than an allocation
required by the Internal Revenue Code to eliminate the difference between a partners book
capital account, credited with the fair market value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property, referred to in this discussion as the
Book-Tax Disparity, will generally be given effect for federal income tax purposes in determining
a partners share of an item of income, gain, loss or deduction only if the allocation has
substantial economic effect. In any other case, a partners share of an item will be determined on
the basis of his interest in us, which will be determined by taking into account all the facts and
circumstances, including:
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his relative contributions to us; |
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the interests of all the partners in profits and losses; |
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the interest of all the partners in cash flow and other nonliquidating distributions; and |
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the rights of all the partners to distributions of capital upon liquidation. |
We believe that, with the possible exception of the issues described in Tax Consequences of
Unit Ownership Section 754 Election and Disposition of Common Units Allocations Between
Transferors and Transferees, allocations under our partnership agreement will be given effect for
federal income tax purposes in determining a partners share of an item of income, gain, loss or
deduction.
Treatment of Short Sales. 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, he would no longer
be a partner for tax purposes with respect to those units during the period of the loan and may
recognize gain or loss from the disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those units would not be reportable
by the unitholder; |
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any cash distributions received by the unitholder as to those units would be fully taxable; and |
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all of these distributions would appear to be ordinary income. |
The proper treatment of a unitholder where common units are loaned to a short seller to cover
a short sale of common units is not clear; therefore, 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. The IRS has announced that it is actively studying issues relating to the tax treatment of
short sales of partnership interests. Please also read Disposition of Common Units Recognition
of Gain or Loss.
Alternative Minimum Tax. Each unitholder will be required to take into account his
distributive share of any items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for noncorporate taxpayers is 26% on the
first $175,000 of alternative minimum taxable income in excess of the exemption amount and 28% on
any additional alternative minimum taxable income. We strongly recommend that prospective
unitholders consult with their tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States federal income tax rate for
individuals currently is 35.0% and the maximum United States federal income tax rate for net
capital gains of an individual is currently 15.0% if the asset disposed of was held for more than
12 months at the time of disposition.
Section 754 Election. We have made the election permitted by Section 754 of the Internal
Revenue Code. That election is irrevocable without the consent of the IRS. The election generally
permits us to adjust a common unit purchasers tax basis in our assets (inside basis) under
Section 743(b) of the Internal Revenue Code to reflect his purchase price. This election does not
apply to a person who purchases common units directly from us. The Section 743(b) adjustment
belongs to the purchaser and not to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered to have two components: (1) his share of
our tax basis in our assets (common basis) and (2) his Section 743(b) adjustment to that basis.
Treasury Regulations under Section 743 of the Internal Revenue Code require that, if the
remedial allocation method is adopted (which we have adopted), a portion of the Section 743(b)
adjustment attributable to recovery property be depreciated over the remaining cost recovery period
for the Section 704(c) built-in gain. Under Treasury Regulation Section 1.167(c)-l(a)(6), a Section
743(b) adjustment attributable to property subject to depreciation under Section 167 of the
Internal Revenue Code, rather than cost recovery deductions under Section 168, is generally
required to be depreciated using either the straight-line method or the 150% declining balance
method. Under our partnership agreement, our general partner is authorized to take a position to
preserve the uniformity of units even if that position is not consistent with these Treasury
Regulations. Please read Tax Treatment of Operations Uniformity of Units.
Although there is no clear authority on this issue, we intend to depreciate the portion of a
Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed
Property, to the extent of any unamortized Book-Tax Disparity, using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful life applied to the
common basis of the property, or treat that portion as non-amortizable to the extent attributable
to property the common basis of which is not amortizable. This method is consistent with the
Treasury Regulations under Section 743 of the Internal Revenue Code but is arguably inconsistent
with Treasury Regulation Section 1.167(c)-1(a)(6) and Treasury Regulation Section 1.197-2(g)(3). To
the extent this Section 743(b) adjustment is attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules described in the Treasury Regulations and
legislative history. If we determine that this position cannot reasonably be taken, we may take a
depreciation or amortization position under which all purchasers acquiring units in the same month
would receive depreciation or amortization, whether attributable to common basis or a Section
743(b) adjustment, based upon the same applicable rate as if they had purchased a direct interest
in our assets. This kind of aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to some unitholders. Please read Tax
Treatment of Operations Uniformity of Units.
A Section 754 election is advantageous if the transferees tax basis in his units is higher
than the units share of the aggregate tax basis of our assets immediately prior to the transfer.
In that case, as a result of the election, the
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transferee would have, among other items, a greater amount of depreciation and depletion deductions
and his share of any gain or loss on a sale of our assets would be less. Conversely, a Section 754
election is disadvantageous if the transferees tax basis in his units is lower than those units
share of the aggregate tax basis of our assets immediately prior to the transfer. Thus, the fair
market value of the units may be affected either favorably or unfavorably by the election. A basis
adjustment is required regardless of whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in loss immediately after the
transfer, or if we distribute property and have a substantial basis reduction. Generally a basis
reduction or a built-in loss is substantial if it exceeds $250,000.
The calculations involved in the Section 754 election are complex and will be made on the
basis of assumptions as to the value of our assets and other matters. For example, the allocation
of the Section 743(b) adjustment among our assets must be made in accordance with the Internal
Revenue Code. The IRS could seek to reallocate some or all of any Section 743(b) adjustment
allocated by us to our tangible assets to goodwill instead. Goodwill, as an intangible asset, is
generally non-amortizable or amortizable over a longer period of time or under a less accelerated
method than our tangible assets. We cannot assure you that the determinations we make will not be
successfully challenged by the IRS and that the deductions resulting from them will not be reduced
or disallowed altogether. Should the IRS require a different basis adjustment to be made, and
should, in our opinion, the expense of compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election. If permission is granted, a subsequent
purchaser of units may be allocated more income than he would have been allocated had the election
not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the year ending December 31 as our taxable year and
the accrual method of accounting for federal income tax purposes. Each unitholder will be required
to include in income his share of our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who has a taxable year ending on a date
other than December 31 and who disposes of all of his units following the close of our taxable year
but before the close of his taxable year must include his share of our income, gain, loss and
deduction in income for his taxable year, with the result that he will be required to include in
income for his taxable year his share of more than one year of our income, gain, loss and
deduction. Please read Disposition of Common Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and Amortization. The tax basis of our assets will be used for
purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on
the disposition of these assets. The federal income tax burden associated with the difference
between the fair market value of our assets and their tax basis immediately prior to the time we
issue additional units will be borne by our general partner, its affiliates and our unitholders
immediately prior to the issuance of additional units. Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and Deduction.
To the extent allowable, we may elect to use the depreciation and cost recovery methods that
will result in the largest deductions being taken in the early years after assets are placed in
service. Property we subsequently acquire or construct may be depreciated using accelerated
methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or otherwise, all or a portion of
any gain, determined by reference to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed as ordinary income rather than
capital gain. Similarly, a common unitholder who has taken cost recovery or depreciation deductions
with respect to property we own will likely be required to recapture some, or all, of those
deductions as ordinary income upon a sale of his interest in us. Please read Tax Consequences of
Unit Ownership Allocation of Income, Gain, Loss and Deduction and Disposition of Common
Units Recognition of Gain or Loss.
The costs incurred in selling our units (called syndication expenses) must be capitalized
and cannot be deducted currently, ratably or upon our termination. There are uncertainties
regarding the classification of costs as organization expenses, which may be amortized by us, and
as syndication expenses, which may not be amortized by us. The underwriting discounts and
commissions we incur will be treated as syndication expenses.
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Valuation and Tax Basis of Our Properties. The federal income tax consequences of the
ownership and disposition of units will depend in part on our estimates of the relative fair market
values, and the tax bases, of our assets. Although we may from time to time consult with
professional appraisers regarding valuation matters, we will make many of the relative fair market
value estimates ourselves. These estimates and determinations of basis are subject to challenge and
will not be binding on the IRS or the courts. If the estimates of fair market value or basis are
later found to be incorrect, the character and amount of items of income, gain, loss or deductions
previously reported by unitholders might change, and unitholders might be required to adjust their
tax liability for prior years and incur interest and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of units equal to the
difference between the amount realized and the unitholders tax basis for the units sold. A
unitholders amount realized will be measured by the sum of the cash or the fair market value of
other property received by him plus his share of our nonrecourse liabilities. Because the amount
realized includes a unitholders share of our nonrecourse liabilities, the gain recognized on the
sale of units could result in a tax liability in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income for a common unit that
decreased a unitholders tax basis in that common unit will, in effect, become taxable income if
the common unit is sold at a price greater than the unitholders tax basis in that common unit,
even if the price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder, other than a dealer in
units, on the sale or exchange of a unit held for more than one year will generally be taxable as
capital gain or loss. Capital gain recognized by an individual on the sale of units held more than
12 months will generally be taxed at a maximum rate of 15%. A portion of this gain or loss, which
will likely be substantial, however, will be separately computed and taxed as ordinary income or
loss under Section 751 of the Internal Revenue Code to the extent attributable to assets giving
rise to depreciation recapture or other unrealized receivables or to inventory items we own.
The term unrealized receivables includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of a unit and may be recognized even
if there is a net taxable loss realized on the sale of a unit. Thus, a unitholder may recognize
both ordinary income and a capital loss upon a sale of units. Net capital losses may offset capital
gains and no more than $3,000 of ordinary income, in the case of individuals, and may only be used
to offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a partnership in separate
transactions must combine those interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of those interests, a portion of that
tax basis must be allocated to the interests sold using an equitable apportionment method.
Treasury Regulations under Section 1223 of the Internal Revenue Code allow a selling unitholder who
can identify common units transferred with an ascertainable holding period to elect to use the
actual holding period of the common units transferred. Thus, according to the ruling, a common
unitholder will be unable to select high or low basis common units to sell as would be the case
with corporate stock, but, according to the Treasury Regulations, may designate specific common
units sold for purposes of determining the holding period of units transferred. A unitholder
electing to use the actual holding period of common units transferred must consistently use that
identification method for all subsequent sales or exchanges of common units. We strongly recommend
that a unitholder considering the purchase of additional units or a sale of common units purchased
in separate transactions consult his tax advisor as to the possible consequences of this ruling and
application of the final Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the taxation of some financial
products and securities, including partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain would be recognized if it were sold, assigned
or terminated at its fair market value, if the taxpayer or related persons enter(s) into:
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a short sale; |
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an offsetting notional principal contract; or |
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a futures or forward contract with respect to the partnership interest or substantially identical property. |
Moreover, if a taxpayer has previously entered into a short sale, an offsetting notional
principal contract or a futures or forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the taxpayer or a related person then
acquires the partnership interest or substantially identical property. The Secretary of the
Treasury is also authorized to issue regulations that treat a taxpayer that enters into
transactions or positions that have substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and Transferees. In general, our taxable income and losses
will be determined annually, will be prorated on a monthly basis and will be subsequently
apportioned among the unitholders in proportion to the number of units owned by each of them as of
the opening of the applicable exchange on the first business day of the month (the Allocation
Date). However, gain or loss realized on a sale or other disposition of our assets other than in
the ordinary course of business will be allocated among the unitholders on the Allocation Date in
the month in which that gain or loss is recognized. As a result, a unitholder transferring units
may be allocated income, gain, loss and deduction realized after the date of transfer.
The use of this method may not be permitted under existing Treasury Regulations. Accordingly,
the IRS may challenge the validity of this method of allocating income and deductions between
unitholders. If this method is not allowed under the Treasury Regulations, or only applies to
transfers of less than all of the unitholders interest, our taxable income or losses might be
reallocated among the unitholders. We are authorized to revise our method of allocation between
unitholders, as well as among unitholders whose interests vary during a taxable year, to conform to
a method permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who disposes of them prior to the
record date set for a cash distribution for that quarter will be allocated items of our income,
gain, loss and deductions attributable to that quarter but will not be entitled to receive that
cash distribution.
Notification Requirements. A unitholder who sells or exchanges units is required to notify us
in writing of that sale or exchange within 30 days after the sale or exchange. We are required to
notify the IRS of that transaction and to furnish specified information to the transferor and
transferee. However, these reporting requirements do not apply to a sale by an individual who is a
citizen of the United States and who effects the sale or exchange through a broker. Failure to
satisfy these reporting obligations may lead to the imposition of substantial penalties.
Constructive Termination. We will be considered to have been terminated for tax purposes if
there is a sale or exchange of 50% or more of the total interests in our capital and profits within
a 12-month period. A constructive termination results 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 12 months of our
taxable income or loss being includable in his taxable income for the year of termination. We would
be required to make new tax elections after a termination, including a new election under Section
754 of the Internal Revenue Code, and a termination would result in a deferral of our deductions
for depreciation. A termination could also result in penalties if we were unable to determine that
the termination had occurred. Moreover, a termination might either accelerate the application of,
or subject us to, any tax legislation enacted before the termination.
Uniformity of Units
Because we cannot match transferors and transferees of units, we must maintain uniformity of
the economic and tax characteristics of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number of federal income tax requirements,
both statutory and regulatory. A lack of uniformity can result from a literal application of
Treasury Regulation Section 1.167(c)-1(a)(6) and Treasury
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Regulation Section 1.197-2(g)(3). Any
non-uniformity could have a negative impact on the value of the units. Please read Tax
Consequences of Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent of any unamortized Book-Tax
Disparity, using a rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to property the common basis of which is not
amortizable, consistent with the Treasury Regulations under Section 743 of the Internal Revenue
Code, even though that position may be inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6) and Treasury Regulation Section 1.197-2(g)(3). Please read Tax Consequences of
Unit Ownership Section 754 Election. To the extent that the Section 743(b) adjustment is
attributable to appreciation in value in excess of the unamortized Book-Tax Disparity, we will
apply the rules described in the Treasury Regulations and legislative history. If we determine that
this position cannot reasonably be taken, we may adopt a depreciation and amortization position
under which all purchasers acquiring units in the same month would receive depreciation and
amortization deductions, whether attributable to a common basis or Section 743(b) adjustment, based
upon the same applicable rate as if they had purchased a direct interest in our property. If this
position is adopted, it may result in lower annual depreciation and amortization deductions than
would otherwise be allowable to some unitholders and risk the loss of depreciation and amortization
deductions not taken in the year that these deductions are otherwise allowable. This position will
not be adopted if we determine that the loss of depreciation and amortization deductions will have
a material adverse effect on the unitholders. If we choose not to utilize this aggregate method, we
may use any other reasonable depreciation and amortization method to preserve the uniformity of the
intrinsic tax characteristics of any units that would not have a material adverse effect on the
unitholders. The IRS may challenge any method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained, the uniformity of units might be
affected, and the gain from the sale of units might be increased without the benefit of additional
deductions. Please read Disposition of Common Units Recognition of Gain or Loss.
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt organizations, non-resident
aliens, foreign corporations, and other foreign persons raises issues unique to those investors
and, as described below, may have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from federal income tax, including
individual retirement accounts and other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income allocated to a unitholder that is a
tax-exempt organization will be unrelated business taxable income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts or estates that own units will be
considered to be engaged in business in the United States because of the ownership of units. As a
consequence they will be required to file federal tax returns to report their share of our income,
gain, loss or deduction and pay federal income tax at regular rates on their share of our net
income or gain. Moreover, under rules applicable to publicly traded partnerships, we will withhold
tax at the highest applicable effective tax rate on cash distributions made quarterly to foreign
unitholders. Each foreign unitholder must obtain a taxpayer identification number from the IRS and
submit that number to our transfer agent on a Form W-8 BEN or applicable substitute form in order
to obtain credit for these withholding taxes. A change in applicable law may require us to change
these procedures.
In addition, because a foreign corporation that owns units will be treated as engaged in a
United States trade or business, that corporation may be subject to the United States branch
profits tax at a rate of 30%, in addition to regular federal income tax, on its share of our income
and gain, as adjusted for changes in the foreign corporations U.S. net equity, which are
effectively connected with the conduct of a United States trade or business. That tax may be
reduced or eliminated by an income tax treaty between the United States and the country in which
the foreign corporate unitholder is a qualified resident. In addition, this type of unitholder is
subject to special information reporting requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise disposes of a unit will
be subject to federal income tax on gain realized on the sale or disposition of that unit to the
extent that this gain is effectively connected
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with a United States trade or business of the
foreign unitholder. Because a foreign unitholder is considered to be engaged in business in the
United States by virtue of the ownership of units, under this ruling a foreign unitholder
who sells or otherwise disposes of a unit generally will be subject to federal income tax on gain
realized on the sale or disposition of units. Apart from the ruling, a foreign unitholder will not
be taxed or subject to withholding upon the sale or disposition of a unit if he has owned less than
5% in value of the units during the five-year period ending on the date of the disposition and if
the units are regularly traded on an established securities market at the time of the sale or
disposition.
Administrative Matters
Information Returns and Audit Procedures. We intend to furnish to each unitholder, within 90
days after the close of each calendar year, specific tax information, including a Schedule K-1,
which describes each unitholders share of our income, gain, loss and deduction for our preceding
taxable year. In preparing this information, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to determine each unitholders share of
income, gain, loss and deduction. We cannot assure you that those positions will yield a result
that conforms to the requirements of the Internal Revenue Code, Treasury Regulations or
administrative interpretations of the IRS. We cannot assure prospective unitholders that the IRS
will not successfully contend in court that those positions are impermissible. Any challenge by the
IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns. Adjustments resulting from an
IRS audit may require each unitholder to adjust a prior years tax liability, and possibly may
result in an audit of his own return. Any audit of a unitholders return could result in
adjustments not related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of federal tax audits,
judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax
treatment of partnership items of income, gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the partners. The Internal Revenue Code
requires that one partner be designated as the Tax Matters Partner for these purposes. The
partnership agreement names our general partner as our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf and on behalf of unitholders.
In addition, the Tax Matters Partner can extend the statute of limitations for assessment of tax
deficiencies against unitholders for items in our returns. The Tax Matters Partner may bind a
unitholder with less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that authority to the Tax
Matters Partner. The Tax Matters Partner may seek judicial review, by which all the unitholders are
bound, of a final partnership administrative adjustment and, if the Tax Matters Partner fails to
seek judicial review, judicial review may be sought by any unitholder having at least a 1% interest
in profits or by any group of unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go forward, and each unitholder with an
interest in the outcome may participate.
A unitholder must file a statement with the IRS identifying the treatment of any item on his
federal income tax return that is not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency requirement may subject a unitholder to
substantial penalties.
Nominee Reporting. Persons who hold an interest in us as a nominee for another person are
required to furnish to us:
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the name, address and taxpayer identification number of the beneficial owner and the
nominee; |
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whether the beneficial owner is: |
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a person that is not a United States person, |
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a foreign government, an international organization or any wholly owned
agency or instrumentality of either of the foregoing, or |
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the amount and description of units held, acquired or transferred for the beneficial
owner; and |
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specific information including the dates of acquisitions and transfers, means of
acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net
proceeds from sales. |
Brokers and financial institutions are required to furnish additional information, including
whether they are United States persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per failure, up to a maximum of $100,000 per
calendar year, is imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with the information
furnished to us.
Accuracy-related Penalties. An additional tax equal to 20% of the amount of any portion of an
underpayment of tax that is attributable to one or more specified causes, including negligence or
disregard of rules or regulations, substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue Code. No penalty will be imposed,
however, for any portion of an underpayment if it is shown that there was a reasonable cause for
that portion and that the taxpayer acted in good faith regarding that portion.
A substantial understatement of income tax in any taxable year exists if the amount of the
understatement exceeds the greater of 10% of the tax required to be shown on the return for the
taxable year or $5,000. The amount of any understatement subject to penalty generally is reduced if
any portion is attributable to a position adopted on the return:
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for which there is, or was, substantial authority, or |
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as to which there is a reasonable basis and the pertinent facts of that position are
disclosed on the return. |
If any item of income, gain, loss or deduction included in the distributive shares of
unitholders might result in that kind of an understatement of income for which no substantial
authority exists, we must disclose the pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for unitholders to make adequate disclosure on
their returns to avoid liability for this penalty. More stringent rules apply to tax shelters,
but we believe we are not a tax shelter.
A substantial valuation misstatement exists if the value of any property, or the adjusted
basis of any property, claimed on a tax return is 200% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. No penalty is imposed unless the portion of the
underpayment attributable to a substantial valuation misstatement exceeds $5,000. If the valuation
claimed on a return is 400% or more than the correct valuation, the penalty imposed increases to
40%.
Reportable Transactions. If we were to engage in a reportable transaction, we (and possibly
you and others) would be required to make a detailed disclosure of the transaction to the IRS. A
transaction may be a reportable transaction based upon any of several factors, including the fact
that it is a type of tax avoidance transaction publicly identified by the IRS as a listed
transaction or that it produces certain kinds of losses in excess of $2 million. Our participation
in a reportable transaction could increase the likelihood that our federal income tax information
return (and possibly your tax return) would be audited by the IRS. Please read Information
Returns and Audit Procedures above.
Moreover, if we were to participate in a reportable transaction with a significant purpose to
avoid or evade tax, or in any listed transaction, you may be subject to the following provisions of
the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly narrower
exceptions, and potentially greater amounts than described above at
Accuracy-related Penalties, |
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for those persons otherwise entitled to deduct interest on federal tax
deficiencies, nondeductibility of interest on any resulting tax
liability, and
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in the case of a listed transaction, an extended statute of limitations. |
We do not expect to engage in any reportable transactions.
Registration as a Tax Shelter. We registered as a tax shelter under the law in effect at the
time of our initial public offering and were assigned a tax shelter registration number. Issuance
of a tax shelter registration number to us does not indicate that investment in us or the claimed
tax benefits have been reviewed, examined or approved by the IRS. The term tax shelter has a
different meaning for this purpose than under the penalty rules described above at
"Accuracy-related Penalties.
The American Jobs Creation Act of 2004 repealed the tax shelter registration rules and
replaced them with the reporting regime described above at Reportable Transactions. However,
IRS Form 8271 nevertheless appears to require a unitholder to report our tax shelter registration
number on the unitholders tax return for any year in which the unitholder holds our units. The IRS
also appears to take the position that a unitholder who sells or transfers our units must provide
our tax shelter registration number to the transferee. Unitholders are urged to consult their tax
advisors regarding the application of the tax shelter registration rules.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you will likely be subject to other taxes, including
state, local and foreign income taxes, unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various jurisdictions in which we do business or own
property or in which you are a resident. Although an analysis of those various taxes is not
presented here, each prospective unitholder should consider their potential impact on his
investment in us. We currently own property or do business in a substantial number of states,
virtually all of which impose a personal income tax and many impose an income tax on corporations
and other entities. We may also own property or do business in other states in the future.
Although you may not be required to file a return and pay taxes in some states because your income
from that state falls below the filing and payment requirement, you will be required to file income
tax returns and to pay income taxes in many of the states in which we do business or own property
and may be subject to penalties for failure to comply with those requirements. In some states, tax
losses may not produce a tax benefit in the year incurred and also may not be available to offset
income in subsequent taxable years. Some of the states may require us, or we may elect, to withhold
a percentage of income from amounts to be distributed to a unitholder who is not a resident of the
state. Withholding, the amount of which may be greater or less than a particular unitholders
income tax liability to the state, generally does not relieve a nonresident unitholder from the
obligation to file an income tax return. Amounts withheld may be treated as if distributed to
unitholders for purposes of determining the amounts distributed by us. Please read Tax
Consequences of Unit Ownership Entity-Level Collections. Based on current law and our estimate
of our future operations, our general partner anticipates that any amounts required to be withheld
will not be material.
It is the responsibility of each unitholder to investigate the legal and tax consequences,
under the laws of pertinent jurisdictions, of his investment in us. Accordingly, we strongly
recommend that each prospective unitholder consult, and depend upon, his own tax counsel or other
advisor with regard to those matters. Further, it is the responsibility of each unitholder to file
all state, local, and foreign as well as United States federal tax returns, that may be required of
him. We make no statement on the state, local or foreign tax consequences of an investment in us.
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Item 2. Exhibits.
The following exhibit to this Registration Statement on Form 8-A is incorporated by reference
from the documents specified, which have been filed with the Securities and Exchange Commission.
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Exhibit No. |
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Description |
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3.1
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Fifth Amended and Restated Agreement of Limited
Partnership of Enterprise Products Partners L.P., dated
effective as of August 8, 2005 (incorporated by reference
to Exhibit 3.1 to Form 8-K filed August 10, 2005). |
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
Registrant has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated:
May 14, 2007.
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ENTERPRISE PRODUCTS PARTNERS L.P. |
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By:
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Enterprise Products GP, LLC, |
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its general partner |
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By:
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/s/ Michael J. Knesek |
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Name:
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Michael J. Knesek |
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Title:
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Senior Vice President, Controller and Principal |
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Accounting Officer of Enterprise Products GP, LLC |
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INDEX TO EXHIBITS
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Exhibit No. |
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Descrition |
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3.1
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Fifth Amended and Restated Agreement of Limited
Partnership of Enterprise Products Partners L.P., dated
effective as of August 8, 2005 (incorporated by reference
to Exhibit 3.1 to Form 8-K filed August 10, 2005). |
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