Containerboard Stocks Slide After IRS Proposes New Rules For MLPs

NEW YORK (TheStreet) -- Shares of several containerboard makers are lower this morning after the Internal Revenue Service proposed new rules about qualifying income for publicly traded partnerships, or PTPs. The Treasury Department and the IRS “intend that intrinsic activities constitute active support” of the activities “and not merely the supply of goods,” according to the proposal, which the IRS has opened up for public comment. “With respect to timber, an activity is processing if it merely modifies the physical form of timber," the proposal also stated. The IRS had previously been in a moratorium on issuing PTP private letter rulings.

ANALYST REACTION: The proposed rules from the IRS would likely prevent income derived from the production of pulp, paper, packaging, and certain wood products from qualifying for MLP eligibility, according to Buckingham Research, which said MLPs now "look to be DOA" for papermaking companies. The firm added that it had been skeptical that anything would happen on the MLP front for containerboard makers and was not including any value for MLP potential in its price targets on stocks in the space.

WHAT'S NOTABLE: Bloomberg reported on April 29 that International Paper  (IP) CEO Mark Sutton said in an interview that the company was "progressing" in its analysis of an MLP structure, but had not decided yet whether to proceed with pursuing one.

PRICE ACTION: In morning trading, International Paper shares slid 4.9% to $51.09, KapStone  (KS) fell 7% to $26.48, Packaging Corp. (PKG) declined 3.6% to $67.67, and RockTenn  (RKT) and MeadWestvaco  (MWV) each dropped about 3%.

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