Commodity-note ruling was revoked with prospective-only effect

Plain-English summary

A fund had received a ruling that income and gain from certain commodity-linked notes counted as qualifying income under section 851(b)(2). The IRS later concluded that issuing a private ruling on that question no longer reflected its current position and revoked the earlier ruling. The fund requested relief from retroactive application under section 7805(b), and the IRS granted that request. The revocation therefore applies only to commodity-linked notes the fund acquired after June 30, 2017.

Ruling snapshot

• Question: Would the IRS revoke the fund's commodity-linked-note ruling, and would the revocation apply retroactively?
• Outcome: mixed, the ruling was revoked but section 7805(b) relief limited the revocation to notes acquired after June 30, 2017
• Key authorities: IRC §§ 851(b)(2), 7805(b); Rev. Proc. 2017-1 § 11.04

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201716025                                              Third Party Communication: None
Release Date: 4/21/2017                                        Date of Communication: Not Applicable
Index Number: 851.02-00, 7805.00-00
                                                               Person To Contact:
---------------------                                          ----------------------, ID No. ------------------
---------------------------                                    Telephone Number:
-----------------------------------------------------------    ----------------------
----------------------------------------                       Refer Reply To:
------------------------------                                 CC:FIP:B1
                                                               PLR-131755-16
                                                               Date:
                                                               January 13, 2017




Legend

Fund                      =          --------------------------------------------------------------------------------
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Dear --------------:

This letter revokes PLR 200705026 (PLR-159184-05) issued to Fund on October 31,
2006, and, in response to a request from your authorized representative dated
December 27, 2016, limits the retroactive effect of such revocation pursuant to section
7805(b) of the Internal Revenue Code.

In PLR 200705026, the Internal Revenue Service (the “Service”) issued a ruling that
income and gain from certain commodity-linked notes constitute qualifying income
under section 851(b)(2) (the “CLN Ruling”). In a letter dated September 29, 2016, the
Service notified Fund that it was considering revoking the CLN Ruling. On December
27, 2016, Fund requested that the Service exercise its discretionary authority under
section 7805(b) to limit the retroactive effect of any revocation.

Since issuing PLR 200705026, the Service has determined that having provided a
private letter ruling on the issue in the CLN Ruling is not in accord with the current views
of the Service. See Rev. Proc. 2016-50, 2016-43 I.R.B. 522, superseded by Rev. Proc.
2017-3, 2017-1 I.R.B.130, 140 (section 4.01(44)); see also REG-123600-16, 81 Fed.
Reg. 66576-77 (Sept. 28, 2016). Section 11.04 of Rev. Proc. 2017-1, 2017-1 I.R.B. 1,
61, provides, in part, that unless it was part of a closing agreement, a letter ruling found
to be in error or not in accordance with the current views of the Service may be revoked
or modified. Accordingly, PLR 200705026 is revoked.
PLR-131755-16                                2

Section 11.04 of Rev. Proc. 2017-1 also provides that, if a letter ruling is revoked, the
revocation applies to all years open under the statute of limitations on assessment
unless the Service uses its discretionary authority under section 7805(b) to limit the
retroactive effect of the revocation. In accordance with Fund’s request, the Service has
decided to grant relief under section 7805(b). The revocation of PLR 200705026 will
apply prospectively only to commodity-linked notes acquired by Fund after June 30,
2017.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to Fund’s authorized representative. We are also sending a copy of this
letter to the appropriate operating division.

                                                 Sincerely,



                                                 -------------------------------------------
                                                 Julanne Allen
                                                 Assistant to the Branch Chief, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Financial Institutions and Products-)