Income Taxes
The Partnership is not subject to federal and state income taxes as a result of its limited partner structure. For federal and state income tax purposes, all income, expenses, gains, losses and tax credits generated by the Partnership flow through to the unitholders. As such, the Partnership does not record a provision for income taxes in the current period. Prior to the Partnership’s IPO, the Partnership’s income was included as part of Rice Energy’s consolidated federal tax return.
Prior to the acquisition of the Water Assets, the operations of the Water Assets were subject to income taxes and were included as part of Rice Energy’s consolidated federal tax return. Accordingly, the income tax effects associated with the operations of the Water Assets continued to be subject to income taxes until the Water Assets were acquired by the Partnership. Due to the Partnership’s status for U.S. federal and state income tax purposes, net current and deferred income tax liabilities of the Water Assets of $7.7 million eliminated through equity on the effective date of their acquisition by the Partnership. For the year ended December 31, 2015, the Partnership recorded income tax expense of approximately $5.8 million associated with the operations of the Water Assets prior to acquisition by the Partnership.
Pursuant to an agreement between the Partnership and the Internal Revenue Service (IRS) regarding the Partnership’s 2016 tax reporting, the Partnership had two short tax years for the calendar year 2016 as a result of a technical termination that occurred on February 22, 2016. This technical termination resulted in a significant deferral of depreciation deductions that were otherwise allowable in computing the taxable income of the Partnership’s unitholders for the period February 23, 2016 through December 31, 2016. The Partnership provided a single Schedule K-1 to each unitholder reflecting the unitholder’s taxable income for the full calendar year.
Based on management’s analysis, the Partnership did not have any uncertain tax positions as of December 31, 2017.