GPA challenges proposed IRS rule

TULSA, Okla. (August 5, 2015) - The Gas Processors Association (GPA) filed comments with the Internal Revenue Service (IRS) Tuesday on its proposed regulations related to whether income from activities with respect to minerals or natural resources as defined in the proposed rule is qualifying income.

The proposed regulations, promulgated on May 5, 2014, under section 7704(d)(1)(E) lists two fundamental requirements to generate qualifying income: the income generating activity must relate to a "mineral or natural resource" and must be derived from one or more listed activities, including "processing" and "refining."

In the comments, GPA said natural gas liquids (NGLs) are natural resources by their very nature and should be treated as natural resources for purposes of determining qualifying income, arguing that the proposed rule creates tests that force "processing" and "refining" into narrow constructions that depart from the literal meaning of the words of the statute, the legislative history and existing Treasury regulations.

"The IRS is proposing to treat NGLs differently from the refining of crude oil, which is unacceptable because NGLs are unquestionable natural resources that are processed," GPA President and CEO Mark Sutton said. "Exclusion of NGLs is inconsistent with the plain meaning of the statute. We ask that the IRS reconsider this proposal."

GPA requested that the proposed definitions of "processing" and "refining" be amended to eliminate disparate treatment of crude oil and NGLs; the association provided suggested language for the proposed regulations.  

GPA concluded its comments requesting that the IRS abide and respect the existing private letter rulings.

"Taxpayers have relied on private letter rulings to determine the scope of qualifying income for more than 27 years since the enactment of the statute," the comments stated. "Taxpayers have conservatively, and in good faith, relied on rulings provided to them by the IRS. This practice should not be disturbed by the proposed rules."