With two different visions for how master limited partnerships should be taxed, the stage is set for a Congressional showdown on pass-through income.

A week after House Republicans released a bill that would cap the tax rate for pass-through businesses such as partnerships at 25%, U.S. Senate Finance Committee Chairman Orrin Hatch, R-Utah, unveiled a "Tax Cuts and Jobs Act" outline Nov. 9 that would instead allow a 17.4% deduction to certain pass-through income and result in higher tax payments by MLP shareholders.

"Both of them are better compared to current laws for investors, but the Senate chairman's mark has a slightly higher rate than the House bill," said Greg Matlock, MLP leader at the business consulting company EY, a name that refers to member companies of Ernst & Young Global Ltd.

For example, if an investor earned $100 from MLP distributions, he or she would pay $25 in taxes under the House bill. Under the Senate version, an investor would retain $82.60 in net income after the 17.4% deduction and would pay $31.80 in taxes per the top marginal tax rate of 38.5%.

By paying distributions to investors, MLPs pass their tax exposure to limited and general partners. For partnerships, it is a crucial advantage over C corporations, where both the company and stock owners pay taxes on earnings and dividends.

Both the House and the Senate have proposed to lower the corporate tax rate to 20% from 35%, but it is unclear whether the dividend tax rate would stay in place. According to a forthcoming amendment by Hatch to the Senate version that would allow corporations a five-year, 12.5% deduction on dividends paid, "generally, and ideally, business income should be taxed once and only once."

MLPs have been taxed as partnerships since their original formation in 1982, but the Revenue Act of 1987 defined MLPs as enterprises generating 90% of gross income from qualifying sources, including upstream and midstream natural resources assets. While the Senate tax plan itself does not provide any details on qualifying income, at least one proposed amendment will seek to expand its definition beyond traditional energy resources. Included on the Nov. 13 list of amendments is Hatch's Master Limited Partnerships Parity Act, based on a 2015 bill of the same name that did not make it out of committee. It would add electric generation from renewable sources, energy storage, biofuels and other new energy resources to the list of businesses eligible for the MLP structure. Sen. Bill Cassidy, R-La., is expected to introduce the MLP Improvement Act, which will "clarify the definition of 'qualifying income.'"

Even though MLPs are likely to retain their tax-advantaged status in any resulting legislation, the Senate could still significantly modify language on deductions.

"My guess is that it's going to change quite a bit," FBR Capital Markets Senior Vice President Benjamin Salisbury said in an interview. "Some of the most important questions, like the permanency of the corporate rate, ... are still up in the air."