The Internal Revenue Service and the Treasury Department have issued proposed regulations relating to qualifying income from exploration, development, mining or production, processing, refining, transportation, and marketing of minerals or natural resources. 

The proposed regulations in REG-132634-14 affect publicly traded partnerships and their partners under Section 7704(d)(1)(E) of the Tax Code.     

“These proposed regulations are largely consistent with the rulings the IRS has issued in the past, with some exceptions,” the IRS said in a statement emailed by an IRS spokesman Tuesday. “Where the new guidance interprets the law more narrowly than in the past, Treasury and IRS believe the regulations more accurately reflect congressional intent.”

The proposed regulations apply to publicly traded partnerships that derive qualifying income from certain natural resource-related activities, the IRS noted. 

“These proposed regulations provide that qualifying income includes only the income and gains from qualifying activities,” said the IRS statement. “They provide an exclusive list of the qualifying activities that make up the terms exploration, development, mining or production, processing, refining, transportation, and marketing of minerals or natural resources. In addition, they explain when certain limited support activities are intrinsic to activities included on the list, so that they will also be considered qualifying activities.”

In general, the proposed regulations will apply to income earned by a partnership in a taxable year beginning on or after the date final regulations are published in the Federal Register, according to the IRS.

To the extent that income from an activity is not qualifying income under the final regulations, transition relief is also provided for certain partnerships that either received private letter rulings; engaged in activities that they treated as giving rise to qualifying income under the law as reasonably interpreted prior to the issuance of the proposed regulations; or rely on the proposed regulations between the date they are issued and the date final regulations are published. The IRS said it does not plan to issue rulings on the application of the transition rule. The Treasury Department and the IRS are encouraging interested stakeholders to comment on these proposed regulations.

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