The Urethane Blog

IRS Reconsidering MLP Ruling

Petrochemical Stocks Jump As IRS Weighs Rule Change


Petrochemical stocks are sharply higher today after a senior Internal Revenue Service official said they may be eligible for tax-advantaged status.

Speaking at an American Bar Association conference in Chicago, Curtis Wilson, an IRS associate chief counsel, said the agency was reconsidering rules it first proposed in May, which would have prevented these companies from converting into master limited partnerships.

MLPs pay no corporate taxes and instead pass their income on to investors. They have long been popular among pipeline operators and many investors thought they could be utilized by chemical makers, too, which turn propane, ethane and other oil byproducts into chemicals that are used in everything from plastic bags to vinyl coatings. A favorable IRS ruling for Westlake Chemical in 2012 fueled speculation that the structure would catch on.

But the IRS in May proposed new rules that said petrochemical production wouldn’t qualify for MLP status unless it was part of a larger refining operation. Westlake, faced with the prospect of having its status revoked, urged the IRS to reconsider and bemoaned “inconsistent results that treat similarly situated taxpayers differently.”

Westlake is up 5.4% today, while its publicly traded partnership, Westlake Chemical Partners LP, adds 8.6%. Also rising are peers including Eastman Chemical , Dow Chemical Co., LyondellBasel NV and PolyOne Corp., which each have chemical businesses that could be candidates for an MLP.