PTP stands for Publicly Traded Partnership.
A Publicly Traded Partnership (PTP) is a type of limited partnership where the interests or units are traded on established securities markets or are readily tradable on a secondary market (or the substantial equivalent thereof). This distinguishes them from traditional limited partnerships that aren't as easily bought and sold by investors.
Essentially, PTPs combine the tax benefits of a partnership with the liquidity of publicly traded securities.
Key Characteristics of a PTP:
- Traded on Exchanges: Units are bought and sold on stock exchanges, similar to shares of a corporation.
- Qualifying Income Requirement: At least 90% of the PTP's gross income must be from "qualifying income" sources. This typically includes income from:
- Mineral or natural resource exploration, extraction, production, processing, refining, transportation, or marketing.
- Real estate.
- Commodities.
- Tax Advantages: PTPs are generally taxed as partnerships, meaning income and losses are passed through directly to the partners (unit holders) without being subject to corporate income tax.
- Liquidity: Unlike typical limited partnerships, PTP units are easily bought and sold, offering investors more liquidity.
Example:
A master limited partnership (MLP) engaged in the transportation of natural gas via pipelines is a common example of a PTP. The income generated from transporting natural gas typically qualifies as "qualifying income" under the IRS regulations.
