Unitholders may have liability to repay distributions that were wrongfully distributed to them.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to
them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a
distribution to the unitholders if the distribution would cause our liabilities to exceed the fair value of our
assets. Delaware law provides that for a period of three years from the date of the impermissible distribution,
limited partners who received the distribution and who knew at the time of the distribution that it violated
Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners
are liable for the obligations of the assignor to make contributions to the partnership that are known to the
substituted limited partner at the time it became a limited partner and for unknown obligations if the liabilities
could be determined from the partnership agreement. Liabilities to partners on account of their partnership
interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining
whether a distribution is permitted.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our
being subject to minimal entity-level taxation by individual states. If the Internal Revenue Service, or IRS,
were to treat us as a corporation for federal income tax purposes, or we become subject to a material
amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash
available for distribution to our unitholders.
The anticipated after-tax economic benefit of an investment in the common units depends largely on our
being treated as a partnership for federal income tax purposes. We have not requested, and do not plan to
request, a ruling from the IRS regarding our status as a partnership.
Despite the fact that we are a limited partnership under Delaware law, it is possible in certain
circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes.
Although we do not believe based upon our current operations that we will be treated as a corporation, a change
in our business (or a change in current law) could cause us to be treated as a corporation for federal income tax
purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on
our taxable income at the corporate tax rate, which is currently a maximum of 35%, and would likely pay state
income tax at varying rates. Distributions to a unitholder would generally be taxed again as corporate
distributions, and no income, gains, losses or deductions would flow through to him. Because a tax would be
imposed upon us as a corporation, our cash available for distribution to a unitholder would be substantially
reduced. Therefore, treatment of us as a corporation for federal tax purposes would result in a material
reduction in the anticipated cash flow and after-tax return to a unitholder, likely causing a substantial reduction
in the value of our common units.
The partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a
manner that subjects us to taxation as a corporation or otherwise subjects us to entity level taxation for federal,
state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels
will be adjusted to reflect the impact of that law on us.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject
to potential legislative, judicial or administrative changes and differing interpretations, possibly on a
retroactive basis.
The present federal income tax treatment of publicly traded partnerships, including us, or an investment in
our common units, may be modified by administrative, legislative or judicial interpretation at any time. Any
modification to the federal income tax laws and interpretations thereof may or may not be applied retroactively.
Moreover, any such modification could make it more difficult or impossible for us to meet the exception which
allows publicly traded partnerships that generate qualifying income to be treated as partnerships (rather than
corporations) for U.S. federal income tax purposes, affect or cause us to change our business activities, or affect
the tax consequences of an investment in our common units. For example, members of the U.S. Congress
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