H.R. 9841: Advancing Capital for Critical Energy Supply and Security Act

This bill would change federal tax rules for publicly traded partnerships (PTPs), which are business entities whose ownership interests are traded on a stock exchange or similar market. These partnerships are often used by energy and infrastructure companies.

What the bill would do

• Changes how certain partnership income is treated for tax purposes. It would exclude income, gains, losses, deductions, and credits from certain publicly traded partnership units when determining unrelated business taxable income, as long as the owner holds less than 5% of the partnership’s capital or profits. This mainly affects tax-exempt investors such as some retirement accounts, pensions, and charities.
• Updates a rule for regulated investment companies (RICs), such as mutual funds and ETFs. It would modify how these funds count certain assets when they invest in publicly traded partnerships, changing the current 25% asset test rules.
• Removes a special passive activity tax rule for publicly traded partnerships. The bill would eliminate a separate application of the passive activity loss rules for PTPs.
• Creates an exception for some sales of publicly traded partnership interests. If a partner sells a class of partnership interests that is regularly traded on an established securities exchange, and the partner has held no more than 10% of that class during the prior 5 years, the bill would exclude that sale from a rule that can treat partnership sales as effectively connected income.
• Changes withholding rules. It would also adjust a withholding provision so it does not apply in the same way to interests in partnerships that are regularly traded on an established securities exchange.

When it would apply

The changes would apply to taxable years beginning after December 31, 2026.

Practical effect

In general, the bill appears designed to make the tax treatment of publicly traded partnerships more favorable and more consistent for investors and funds. It may make these securities easier for tax-exempt investors and certain funds to hold, and it may reduce tax and withholding burdens in some transactions involving exchange-traded partnership interests.

Relevant Companies

• ET - Energy Transfer LP; a large publicly traded partnership that could be directly affected by changes to partnership tax treatment and investor holding rules.
• MPLX - MPLX LP; a publicly traded partnership in the energy sector that could be affected by the revised tax rules.
• EPD - Enterprise Products Partners L.P.; a major publicly traded partnership likely to be impacted by changes affecting exchange-traded partnership interests.
• PAA - Plains All American Pipeline, L.P.; a publicly traded partnership that could be affected by the bill’s partnership tax provisions.
• WES - Western Midstream Partners, LP; a publicly traded partnership that may be directly impacted by the bill.
• OKE - ONEOK, Inc.; while not itself an MLP in the same way as the others, it has partnership-related structures and exposure to the broader sector that could be affected by related tax rule changes.