[Congressional Record (Bound Edition), Volume 149 (2003), Part 6]
[Extensions of Remarks]
[Page 8059]
[From the U.S. 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 OF 
                     REGULATED INVESTMENT COMPANIES

                                 ______
                                 

                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                         Tuesday, April 1, 2003

  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 tax-exempt status. 
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, such as pipe lines that 
transmit oil and gas from where they are extracted as well as from 
refineries to end users across the nation. Unfortunately, at the 
precise time that we need to develop domestic sources of energy, we 
lack sufficient pipeline capacity to move natural gas from where it is 
produced in the Rockies to extraction facilities and finally to 
consumers. In the Gulf Coast, the problem is that we have insufficient 
pipelines to move oil and gas from the refineries to consumers in the 
Midwest and on the East coast.
  The legislation I am introducing today would not only provide access 
to the capital needed by these energy pipeline companies, it would also 
significantly speed up the creation of 20,000 to 30,000 high paying 
construction jobs to build these pipelines at precisely the time we 
need to jump start our economy. In addition, the sooner we build these 
pipelines, the sooner we will reduce our dependence on foreign sources 
of energy.
  The bill I am introducing today would provide PTPs with access to 
needed capital 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. According to the Joint Committee 
on Taxation, this change in mutual fund rules which will hasten our 
energy independence will cost only $18 M over 5 years and $49 M over 
ten years.
  In the past, this provision was sponsored by Bill Thomas, now 
chairman of the Ways and Means Committee, and was approved by Congress 
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 108th Congress, 
and hope that my colleagues will join me in supporting this 
legislation.

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