Deerfield, Ill. — CF Industries Holdings Inc. noted this week that the Internal Revenue Service on May 6 issued proposed regulations on the types of income and activities which constitute qualified income of a Master Limited Partnership (MLP). The proposed regulations would have the effect of limiting the types of income and activities which qualify under the MLP rules, subject to certain transition provisions. The IRS proposal specifically highlights companies that perform chemical processing and transformation activities as one of the focuses of the proposed changes, but the proposed regulations do not contain specific proposals regarding fertilizer-related activities. CF holds a 75.3 percent stake in Terra Nitrogen Company LP, an MLP that owns a nitrogen fertilizer manufacturing complex in Verdigris, Okla. Currently, no federal income taxes are paid by Terra due to its MLP status. CF noted that any change in the tax treatment of qualified income of fertilizer-related activities could have a material impact on the taxation of Terra and could have a material adverse impact on unit holder distributions for unit holders, who would not be entitled to a dividends received deduction or other similar offsetting deduction. CF said that under current law, if Terra were taxed as a corporation, due to its current ownership interest, CF would qualify for a partial dividends received deduction on the dividends received from Terra. Therefore, CF said it would not expect this proposed change to have a material impact on CF’s financial condition or results of operations. CF said it will continue to monitor the IRS regulatory activities. Other fertilizer MLPs include Rentech Nitrogen Partners, CVR Partners LP, and OCI Partners LP.
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