[Congressional Record Volume 147, Number 49 (Thursday, April 5, 2001)]
[Extensions of Remarks]
[Page E566]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      A BILL TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO TREAT 
DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS AS QUALIFYING INCOME OR 
                     REGULATED INVESTMENT COMPANIES

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                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                        Wednesday, April 4, 2001

  Mr. HERGER. Mr. Speaker, today I am introducing a bill to allow 
mutual funds to invest without restriction in publicly traded 
partnerships, or PTPs. PTPs, which are also known as MLPs, are limited 
partnerships which are traded on public securities exchanges in shares 
known as ``units.'' Because interests in PTPs are liquid and can be 
bought in small increments, they can be and often are bought by small 
investors. Many of those investing in PTPs are older individuals, who 
buy them for the reliable income stream they receive from quarterly PTP 
distributions.
  Unfortunately, the tax code currently deters mutual funds 
representing many small investors from investing in PTPs. As safe, 
liquid securities which generally provide a steady income stream, PTPs 
could be an excellent investment for mutual funds. However, the tax 
code requires that mutual funds get 90 percent of their income from 
specific sources in order to retain their special tax treatment. 
Distributions from a partnership do not qualify, nor do most types of 
partnership income which flow through to the fund. The only way a 
mutual fund can invest in a PTP is to be certain that the income it 
receives from that investment and other nonqualifying sources will 
never exceed 10 percent of its total income. Faced with the burden of 
keeping track of percentages and the drastic consequences of going over 
the limit, most mutual fund managers turn to other investments.
  It makes no sense for publicly traded partnerships to be excluded 
from the list of qualifying income sources for mutual funds. While 
traditional partnership interests--the only kind that existed when 
these rules were written--were illiquid and not always well regulated, 
PTPs are traded on public exchanges and must file the same information 
with the Securities and Exchange Commission as publicly traded 
corporations.
  Mutual funds are an increasingly important part of the capital 
markets, and the inability to attract them as investors is hindering 
PTPs in their ability to raise the capital they need to grow and 
provide new jobs. Many PTPs are in energy-related businesses, the very 
sector whose growth we wish to encourage right now. Moreover, mutual 
funds and their investors are being denied an opportunity to earn money 
through PTP investments.
  The legislation I am introducing would rectify this situation by 
simply adding income received by or allocated to a mutual fund by a PTP 
to the list of income sources that a mutual fund may use to meet the 90 
percent test. This provision has been sponsored by Bill Thomas, now 
chairman of the Ways and Means Committee, in the last two Congresses 
and was approved by Congress as a whole in 1999 as part of the Taxpayer 
Refund and Relief Act, later vetoed by the President. I am happy to 
take up the cause in the 107th Congress, and hope that my colleagues 
will join me in supporting this legislation.

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