What changed in this filing

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Item 1A. Risk Factors

2021-02-11 compared with 2020-02-12 · 81 added, 72 removed, 287 unchanged (35% of the section changed)

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See also “Cautions Regarding Forward-Looking Statements” in Item 7 .

Business-related Risks

Business-related Risks, including risks relating to COVID-19

Our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate significantly based on various factors, including many factors outside of our control.

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• Market Factors .

Global financial markets performed very well in 2019, supported by three 25 basis point interest rate cuts from the U.S.

Federal Reserve, which were designed to prevent negative impacts from global risks that emerged during the year.

Other central banks around the world also provided additional monetary accommodation, boosting global financial markets broadly even as aggregate growth slowed in 2019 relative to 2018.

Investor optimism about the eventual resolution of the trade dispute between the United States and China provided a significant boost to global equities in the fourth quarter of 2019.

In addition, the Federal Reserve resumed expansion of its balance sheet late in the year, which has been viewed by many financial market participants as indicative of the central bank’s willingness to keep liquidity ample.

Subdued inflation kept interest rates generally low, which supported both economic growth and strong financial market performance.

Some key risks to market performance in 2020 we are considering include a resumption (or heightening) of U.S./China trade tensions, geopolitical conflict and the U.S.

These factors, and the market volatility they may cause, may adversely affect our AUM and revenues.

The dramatic securities market declines experienced during March 2020, which resulted from the global effects of COVID-19, caused a significant reduction in our AUM.

Markets and AUM levels have since recovered to new highs following unprecedented, coordinated monetary and fiscal policy support and, more recently, the approval of vaccines to help remedy the global pandemic.

However, we recognize that, due to continued uncertainty associated with these circumstances, markets may remain volatile and, accordingly, there remains risk of a significant reduction in our revenues and net income in future periods, particularly if the negative effects on the global economy from COVID accelerate.

Global economies and financial markets are increasingly interconnected, which increases the probability that conditions in one country or region might adversely impact a different country or region.

Conditions affecting the general economy, including political, social or economic instability at the local, regional or global level, such as the civil unrest centered around racial inequity experienced across the U.S.

during the second, third and fourth quarters of 2020, and the riot experienced in Washington D.C.

in January 2021 surrounding the transition to a new Presidential administration, may also affect the market value of our AUM.

Health crises, such as the COVID-19 pandemic, as well as other incidents that interrupt the expected course of events, such as natural disasters, war or civil disturbance, acts of terrorism (whether foreign or domestic), power outages and other unforeseeable and external events, and the public response to or fear of such diseases or events, have had and may in the future have a significant adverse effect on financial markets and our AUM, revenues and net income.

Furthermore, the preventative and protective health-related actions, such as business activity suspensions and population lock-downs, that governments have taken, and may continue to take, in response to COVID-19 have resulted, and may continue to result, in periods of business interruption, inability to obtain raw materials, supplies and component parts, and reduced or disrupted operations.

These circumstances have caused, and may continue to cause, significant economic disruption and high levels of unemployment, which will adversely affect the financial condition and results of operations of many of the companies in which we invest, and likely reduce the market value of their securities and thus our AUM and revenues.

Furthermore, the significant market volatility and uncertainty, and reductions in the availability of margin financing, we experienced during the first quarter of 2020 severely limited the liquidity of certain asset backed and other securities, making it at times impossible to sell these securities at prices reflecting their true economic value.

While liquidity conditions have improved considerably since the first quarter following the stimulus programs announced by the U.S.

Federal Reserve and U.S.

Treasury, we recognize the possibility that conditions could deteriorate in the future.

Lack of liquidity makes it more difficult for our funds to meet redemption requests.

If liquidity were to worsen, this may have a significant adverse effect on our AUM, revenues and net income in the future.

• Client Preferences .

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• Our Investment Performance .

Our ability to achieve investment returns for clients that meet or exceed investment returns for comparable asset classes and competing investment services is a key consideration when clients decide to keep their assets with us or invest additional assets, and when a prospective client is deciding whether to invest with us.

Poor investment performance, both in absolute terms and/or relative to peers and stated benchmarks, may result in clients withdrawing assets and prospective clients choosing to invest with competitors.

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Our competitive environment has become increasingly difficult over the past decade, as active managers, which invest based on individual security selection, have, on average, consistently underperformed passive services, which invest based on market indices.

For the 12-month period ended June 30, 2019, active equity fund managers, although they improved their relative performance compared to prior periods, generally continued to lag their key benchmarks, with 48% of active managers outperforming.

Results varied among growth, value and core managers.

Demand for passive strategies persisted, and while active equity managers continued to struggle to attract new assets, flows to active fixed income managers turned positive.

In the U.S., total industry-wide active mutual fund outflows of $286 billion in 2018 improved to net outflows of $34 billion in 2019.

Active performance relative to benchmarks in the first half of 2020 remained mixed, with 51% of active managers outperforming their passive benchmarks for the six months ended June 30, 2020 (latest data available).

stock active funds fared better with 60% outperforming benchmarks, while 48% of U.S.

stock active funds outperformed and just 40% of active bond funds outperformed their benchmarks.

Also, results varied among growth, value and core managers.

Demand for passive strategies persisted, and while active equity managers continued to struggle to attract new assets, flows to active fixed income managers remained positive.

In the U.S., total industry-wide active mutual fund outflows of $196 billion in 2020 increased from net outflows of $12 billion in 2019.

Active equity U.S.

mutual fund outflows of $289 billion in 2019 increased by 16% year-over-year as the pace of outflows steadily accelerated during the year.

mutual fund outflows of $338 billion in 2020 increased by 23% year-over-year.

Active fixed income U.S.

mutual funds recovered following significant outflows during the fourth quarter of 2018, as inflows during 2019 of $272 billion, reflecting positive flows in each quarter of 2019, improved by $258 billion compared to 2018.

Meanwhile, total industry-wide passive mutual fund inflows of $453 billion were up slightly from last year's inflows of $450 billion.

The most recent data available for U.S.

institutions (through September 30, 2019) is more negative.

Total industry active equity and fixed income net outflows for the nine months ended September 30, 2019 were $481 billion, approximately 117% more than the same period a year ago.

mutual funds showed continued strength with inflows of $246 billion in 2020, though they decreased 9% from $271 billion in 2019.

Fixed income active flows were positive in each quarter in 2020 following the sell-off in March 2020.

Total industry-wide passive mutual fund inflows of $361 billion declined by 20% from last year's inflows of $450 billion.

In this environment, organic growth through positive net inflows is difficult to achieve for active managers, such as AB, and requires taking market share from other active managers.

The significant shift from active services to passive services adversely affects Bernstein Research Services revenues as well.

Global market volumes have declined in recent years, and we expect this to continue, fueled by persistent active equity outflows and passive equity inflows.

While global market trading volumes increased in 2020 due to higher market volatility, predominantly relating to COVID, the broader trend in recent years has been declines, which we would expect to continue, fueled by persistent active equity outflows and passive equity inflows.

As a result, portfolio turnover has declined and investors hold fewer shares that are actively traded by managers.

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Damage to our reputation, resulting from poor or inconsistent investment performance, among other factors, can reduce substantially our AUM and impair our ability to maintain or grow our business.

EQH and its subsidiaries, as well as AXA and its subsidiaries, provide a significant amount of our AUM and fund a significant portion of our seed investments, and if our agreements with them terminate or they withdraw capital support, whether as a result of EQH's public offerings since 2018 or another factor, it could have a material adverse effect on our business, results of operations and/or financial condition.

EQH (our parent company), AXA and their respective subsidiaries constitute our largest clients.

EQH and its subsidiaries, and to a lesser extent AXA and its subsidiaries, provide a significant amount of our AUM and fund a significant portion of our seed investments, and if our agreements with them terminate or they withdraw capital support, whether as a result of EQH's public offerings since 2018 or another factor, it could have a material adverse effect on our business, results of operations and/or financial condition.

EQH (our parent company) and its subsidiaries is our largest client.

Our EQH affiliates represented approximately 19%, of our AUM as of December 31, 2020, and we earned approximately 3% of our net revenues from services we provided to them in 2020.

AXA and its subsidiaries represented approximately 5% of our AUM as of December 31, 2019 , and we earned approximately 2% of our net revenues from services we provided to them in 2019.

Also, AXA and its subsidiaries represented approximately 3% of our AUM as of December 31, 2020, and we earned approximately 2% of our net revenues from services we provided to them in 2020.

Our related investment management agreements are terminable at any time or on short notice by either party, and neither EQH nor AXA is under any obligation to maintain any level of AUM with us.

A material adverse effect on our business, results of operations and/or financial condition could result if EQH or AXA were to terminate their investment management agreements with us.

Further, while we currently cannot predict the eventual impact on us of AXA's sale of its interest in EQH, such impact could include a reduction in the support AXA has provided to us in the past with respect to our investment management business, resulting in a decrease to our revenues and ability to initiate new investment services.

Also, we rely on AXA, including its subsidiary AXA Business Services, for a number of significant services and we benefit from our affiliation with AXA in certain common vendor relationships.

These arrangements may change with possible negative financial implications for us.

A material adverse effect on our business, results of operations and/or financial condition could result if EQH were to terminate its investment management agreements with us.

During the second quarter of 2018, AXA completed the sale of a minority stake in EQH through an initial public offering ("IPO").

Since then, AXA has completed additional offerings and taken other steps, most recently during the fourth quarter of 2019.

As a result, AXA owned less than 10% of the outstanding common stock of EQH as of December 31, 2020.

While we cannot at this time predict the full impact on AB of this transaction, such impact has included a reduction in the support AXA provided to AB in the past with respect to AB's investment management business, resulting in a modest decrease in our revenues and ability to initiate new investment services.

Also, AB relies on AXA, including its subsidiary, AXA Business Services, for several significant services, and AB has benefited from its affiliation with AXA in certain common vendor relationships.

Some of these arrangements have changed, and others are expected to change, with immaterial financial implications for AB.

Our business is dependent on investment advisory agreements with clients, and selling and distribution agreements with various financial intermediaries and consultants, which generally are subject to termination or non-renewal on short notice.

We derive most of our revenues pursuant to written investment management agreements (or other arrangements) with institutional investors, mutual funds and private wealth clients, and selling and distribution agreements with financial intermediaries that distribute AB Funds.

Generally, the investment management agreements (and other arrangements), including our agreements with AXA, EQH and their respective subsidiaries, are terminable at any time or upon relatively short notice by either party.

Generally, the investment management agreements (and other arrangements), including our agreements with EQH and its subsidiaries, are terminable at any time or upon relatively short notice by either party.

The investment management agreements pursuant to which we manage the U.S.

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Consequently, there can be no assurance that the board of directors of each fund will approve the fund’s investment management agreement each year, or will not condition its approval on revised terms that may be adverse to us.

In addition, investors in AB Funds can redeem their investments without

In addition, investors in AB Funds can redeem their investments without notice.

Any termination of, or failure to renew, a significant number of these agreements, or a significant increase in redemption rates, could have a material adverse effect on our results of operations and business prospects.

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As a result, blended pricing throughout our industry is lower now than it was historically, and price declines may continue.

In addition, fee rates we charge and charged by other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue.

In addition, fee rates we charge

and charged by other brokers for brokerage services have historically experienced price pressure, and we expect these trends to continue.

Also, while increases in transaction volume and market share often can offset decreases in rates, this may not continue.

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We may engage in strategic transactions that could pose risks.

As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, consolidations, joint ventures and similar transactions, some of which may be material.

As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, consolidations, joint venture partnerships and similar transactions, some of which may be material.

These transactions, if undertaken, may involve various risks and present financial, managerial and operational challenges, including:.

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• potential disputes with counterparties;

potential dilution to our existing unitholders, if we fund the purchase price of a transaction with AB Units or AB Holding Units.

• the possible need for us to increase our firm's leverage or, if we fund the purchase price of a transaction with AB Units or AB Holding Units, likely dilution to our existing unitholders.

Acquisitions also pose the risk that any business we acquire may lose customers or employees or could under-perform relative to expectations.

Additionally, the loss of investment personnel poses the risk that we may lose the AUM we expected to manage, which could adversely affect our results of operations.

Furthermore, strategic transactions may require us to increase our leverage or, if we issue AB Units or AB Holding Units to fund an acquisition, would dilute the holdings of our existing Unitholders.

We may not accurately value the securities we hold on behalf of our clients or our company investments.

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Although the eventual impact on AB from this process is not yet known, the uncertainty created by these circumstances could have a significant adverse effect on AB’s ability to motivate and retain current employees.

Further significant managerial and operational challenges could arise, such as ineffective transfer of institutional knowledge from current employees to newly-hired employees, if AB

experiences significantly greater attrition among current employees than the firm anticipates in connection with the relocation and/or if the firm encounters more difficulty than expected in hiring qualified employees to help staff our Nashville headquarters.

Further significant managerial and operational challenges could arise, such as ineffective transfer of institutional knowledge from current employees to newly-hired employees, if AB experiences significantly greater attrition among current employees than the firm anticipates in connection with the relocation and/or if the firm encounters more difficulty than expected in hiring qualified employees to help staff our Nashville headquarters.

Additionally, our estimates for both the transition costs and the corresponding expense savings relating to our headquarters relocation, which we discuss in more detail in “Relocation Strategy” in Item 7 , are based on our current assumptions of employee relocation costs, severance, and overlapping compensation and occupancy costs.

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Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information.

As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations.

As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to

our business operations.

Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information.

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It is critical that we ensure the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems.

Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until a sum of money is paid), which could materially harm our operations and reputation.

Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, supply chain attacks, computer viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until a sum of money is paid), which could materially harm our operations and reputation.

Additionally, while we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.

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Any such failure could cause significant harm to our reputation and result in litigation, regulatory scrutiny and/or significant remediation costs.

Unpredictable events, including climate change, natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business.

War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious disease (such as the recent impact caused by the 2019 novel coronavirus) could interrupt our operations by:

Unpredictable events, including climate change, outbreak of infectious disease, natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business.

War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious disease (such as the ongoing COVID-19 pandemic) could interrupt our operations by:

• causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive;

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Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business, including making our efforts to comply more expensive and time-consuming.

For example, in 2015 the Financial Supervisory Commission in Taiwan (“ FSC ”) implemented new limits on the degree to which local investors can own an offshore investment product.

For example, in 2015 the Financial Supervisory Commission in Taiwan (the “ FSC ”) implemented new limits on the degree to which local investors can own an offshore investment product.

While certain exemptions have been available to us, should we not continue to qualify, the FSC’s rules could force some of our local resident investors to redeem their investments in our funds sold in Taiwan (and/or prevent further sales of those funds in Taiwan), some of which funds have local ownership levels substantially above the FSC limits.

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Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-side revenues.

Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions.

If that occurs, we would expect that research budgets from those clients will decrease further, which could result in an additional significant decline in our sell-side revenues.

Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures increasingly may force buy-side firms operating outside of Europe to pay for research from their own resources instead of through bundled trading commissions.

To the extent that occurs, we expect that research budgets from those clients will decrease further, which could result in an additional significant decline in our sell-side revenues.

Additionally, these competitive and client pressures may result in our buy-side operation paying for research out of our own resources instead of through bundled trading commissions, which could increase our firm's expenses and decrease our operating income.

Additionally, in July 2017 the Chief Executive of the U.K.

Financial Conduct Authority (“ FCA ”), which regulates the London Interbank Offered Rate, or “ LIBOR ,” as a “benchmark” or “reference rate” for various interest rate calculations, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021.

Financial Conduct Authority (the “ FCA ”), which regulates the London Interbank Offered Rate, or “ LIBOR ,” as a “benchmark” or “reference rate” for various interest rate calculations, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021.

In November 2020, the ICE Benchmark Administration Limited announced a plan to extend the date as of which most U.S.

LIBOR values would cease being computed from December 31, 2021 to June 30, 2023.

Although financial regulators and industry working groups have suggested alternative reference rates, global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR remains unclear.

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Further, we are prioritizing the mitigation of risks associated with the forecast changes to financial instruments and performance benchmarks referencing existing LIBOR rates, and concurrently any impact on AB portfolios and investment strategies.

Lastly, it also is uncertain how regulatory trends will evolve under the current U.S.

President's administration and abroad.

For example, in June 2016, a narrow majority of voters in a U.K.

referendum voted to exit the European Union (“ Brexit ”) and, as of January 31, 2020, the U.K.

did just that.

However, it remains unclear exactly how the U.K.’s status in relation to the European Union (" EU ") will change now that is has left.

Accordingly, our U.K.-based buy-side and sell-side subsidiaries are implementing alternative arrangements in EU jurisdictions in order to ensure continued operations in the Eurozone, including our continued ability to market and sell various investment products in the Eurozone.

In addition, any other changes in the composition of the EU’s member states may add further complexity to our global risks and operations.

Lastly, it also is uncertain how regulatory trends will further evolve, both in the U.S.

For example, following the Brexit referendum in June 2016, the U.K.'s departure from the European Union (the " EU ") resulted in the U.K.

leaving the EU Single Market on December 31, 2020.

While the U.K.

and the EU have agreed to a trade deal, which took effect on January 1, 2021, this deal does not include specific arrangements for financial services.

Accordingly, since the start of 2021, our U.K.-based buy-side and sell-side subsidiaries have implemented alternative arrangements in EU jurisdictions (utilizing AB's EU-based subsidiaries) to ensure continued operations in the EU Single Market.

These arrangements are subject to potential change due to ongoing negotiations between the U.K.

and the EU on future regulatory cooperation, and it is difficult to ascertain how any such changes may impact the ability of our U.K.-based subsidiaries to provide services to EU-based clients in the future.

We are involved in various legal proceedings and regulatory matters and may be involved in such proceedings in the future, any one or combination of which could have a material adverse effect on our reputation, financial condition, results of operations and business prospects.

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There is no public trading market for AB Units and we do not anticipate that a public trading market will develop.

The AB Partnership Agreement restricts our ability to participate in a public trading market or anything substantially equivalent to one by providing that any transfer that may cause AB to be classified as a “publicly traded partnership” (“ PTP ”) as defined in Section 7704 of the Internal Revenue Code of 1986, as amended (“ Code ”), shall be deemed void and shall not be recognized by AB.

Section 7704 of the Internal Revenue Code of 1986, as amended (the “ Code ”), shall be deemed void and shall not be recognized by AB.

In addition, AB Units are subject to significant restrictions on transfer, such as obtaining the written consent of EQH and the General Partner pursuant to the AB Partnership Agreement.

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If such units were to be considered readily tradable, AB would be subject to federal and state corporate income tax on its net income.

Furthermore, as noted above , should AB enter into a substantial new line of business, AB Holding, by virtue of its

ownership of AB, would lose its status as a grandfathered PTP and would become subject to corporate income tax as set forth above .

Furthermore, as noted above , should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a grandfathered PTP and would become subject to corporate income tax as set forth above .

If AB and AB Holding were to become subject to corporate income tax as set forth above , their net income and quarterly distributions to Unitholders would be materially reduced.

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If we successfully make such a request, we would have to reduce suspended passive loss carryovers in a manner which is binding on the partners.

In August and December, 2018, the IRS issued final regulations providing rules relating to the operation of the partnership audit rules (the “ Final Regulations ”).

Pursuant to the 2015 Act and the Final Regulations, for taxable years beginning after December 31, 2017, we will be required to designate a partner, or other person, with a substantial presence in the United States as the partnership representative (“ Partnership Representative ”) and we will no longer have a “tax matters partner.” The Partnership Representative will have the sole authority to act on our behalf for purposes of, among other things, U.S.

For taxable years beginning after December 31, 2017, a "partnership representative" that we designate (a “ Partnership Representative ”) will have the sole authority to act on our behalf for purposes of, among other things, U.S.

federal income tax audits and judicial review of administrative adjustments by the IRS.

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federal income tax audits and judicial review of administrative adjustments by the IRS, will be binding on us and our Unitholders.

In addition, the Final Regulations clarified the procedure under which a partnership may elect to require its unitholders to take into account on their income tax returns an audit adjustment made to the partnership’s income tax items.

We may, but are not required to, make such a “push-out” election.

In addition, a partnership that is a partner of another partnership may elect to have its unitholders take an audit adjustment of the lower-tier partnership into account (i.e., the upper-tier partnership may push adjustments received from the lower-tier partnership through to the partners of the upper-tier partnership).

In addition, for taxable years beginning after December 31, 2017, we may, but are not required to, make an election to require our Unitholders to take into account on their income tax returns an audit adjustment made to our income tax items, also known as a “push-out” election.

Also, a partnership that is a partner of another partnership may elect to have its unitholders take an audit adjustment of the lower-tier partnership into account (i.e., the upper-tier partnership may push adjustments received from the lower-tier partnership through to the partners of the upper-tier partnership).

The upper-tier partnership must timely complete the “push-out” of the adjustment in order for it to be effective.

Under the Final Regulations, such election must be made by the extended due date for the return for the adjustment year of the audited partnership, regardless of whether the audited partnership is required to file a return for the adjustment year or timely files a request for an extension for its return.

The Final Regulations set forth a number of requirements to make a “push-out” election and we may be unable or unwilling to comply with such requirements.

Such election must be made by the extended due date for the return for the adjustment year of the audited partnership, regardless of whether the audited partnership is required to file a return for the adjustment year or timely files a request for an extension for its return.

There are a number of requirements to make a “push-out” election and we may be unable or unwilling to comply with such requirements.

If we do not make a “push-out” election, we would be required to pay any tax resulting from the adjustments to our income tax items, and the cash available for distribution to unitholders would be substantially reduced.

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unitholder and authorized the IRS to issue regulations to carry out the withholding rules in the case of publicly traded partnerships.

In December 2017, the IRS issued a notice suspending the application of these new withholding rules to the

disposition of publicly traded partnership units until the IRS issued related guidance.

In May 2019, the IRS issued proposed regulations (" Proposed Regulations ") that would, if enacted, end the suspension of withholding rules with respect to the disposition of units in publicly traded partnerships by non-U.S.

Taxpayers are permitted to rely on the suspension provided by the earlier notice until finalized regulations are enacted, which the IRS intends to to be 60 days after the date that any such regulations are finalized.

We cannot predict when or if the IRS will finalize the Proposed Regulations or release other guidance or what the finalized regulations or other guidance will indicate.

If the Proposed Regulations are finalized and enacted in their current form, they generally would subject publicly traded partnerships to the same rules as other partnerships, in which case we would be subject to two different withholding regimes.

Under the first regime, the recipient of the units being transferred, or the broker through which such transfer is effected, generally will be required to withhold 10% of the amount realized by the transferring unitholder, unless the transferring unitholder provides the recipient unitholder (or the broker, as applicable) with either proper documentation proving that the transferring unitholder is not a nonresident alien individual or foreign corporation, or with certain other statements or certifications described in the Proposed Regulations that limit or relieve the recipient unitholder’s (or the broker's, as applicable) withholding obligation.

Under the second regime, if the recipient unitholder (or the broker, as applicable) fails to properly withhold, then we generally would be obligated to deduct and withhold from distributions to the recipient unitholder a tax in an amount equal to the amount the transferring unitholder (or the broker, as applicable) failed to withhold (plus interest).

Whether or not these withholding rules apply does not affect the characterization of gain or loss from the sale or exchange of partnership units by a non-U.S.

unitholder as effectively connected with a U.S.

The requirement to withhold on amounts realized in connection with the sale, exchange or disposition of certain interests in a publicly traded partnership (including by brokers) is suspended under Notice 2018-08 for transfers that occur before January 1, 2022, and therefore no withholding will apply.

On November 30, 2020, the IRS published final regulations (the " 1446 Final Regulations ") that address withholding tax and information reporting with respect to interests in publicly traded partnerships engaged in a U.S.

trade or business.

The 1446 Final Regulations end the suspension of withholding on the sale, exchange or disposition of certain interests in a publicly traded partnership, effective January 1, 2022, but place the primary responsibility for such withholding obligations for transfers effected through brokers on the broker, and not the publicly trade partnership.

However, a publicly traded partnership may be liable for any under-withholding by a broker that relies on a qualified notice for which the publicly traded partnership failed to make a reasonable estimate of the amounts required for determining the applicability of the "ten percent exception." The "ten percent exception" applies if, either (1) the publicly traded partnership was not engaged in a U.S.

trade or business during a specified period of time, or (2) upon a hypothetical sale of the publicly traded partnership's assets at fair market value, (i) the amount of net gain that would have been effectively connected with the conduct of a trade or business within the United States would be less than 10 percent of the total net gain, or (ii) no gain would have been effectively connected with the conduct of a trade or business in the United States.

We may be liable for any under-withholding by nominees on our Unitholder distributions after January 1, 2022.

Under the 1446 Final Regulations, for distributions made after January 1, 2022, a publicly traded partnership must post on its primary public website (and keep accessible for 10 years), and deliver to any registered holder that is a nominee, a qualified notice that states the amount of a distribution that is attributable to each type of income group specified in the 1446 Final Regulations.

If the qualified notice is incorrect such that it causes a broker to under-withhold with respect to an amount in excess of cumulative net income, the publicly traded partnership is liable for any under-withholding on such amount.

Unresolved Staff Comments

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors