Commodity-note ruling was revoked while subsidiary-income ruling remained

Plain-English summary

Two funds had received an earlier ruling with separate conclusions for commodity-linked-note income and specified income inclusions from subsidiaries under section 851(b)(2). The IRS revoked only the commodity-linked-note conclusion because issuing a private ruling on that question no longer reflected its current position. The conclusion covering Subpart F income and QEF inclusions remained in effect. Because the funds did not request relief under section 7805(b), the commodity-linked-note revocation applied to all open years and future years.

Ruling snapshot

• Question: Which portions of the funds' earlier qualifying-income ruling would the IRS revoke?
• Outcome: mixed, the commodity-linked-note ruling was revoked retroactively but the subsidiary-income ruling remained in effect
• 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: 201716035                                              Third Party Communication: None
Release Date: 4/21/2017                                        Date of Communication: Not Applicable
Index Number: 851.02-00
                                                               Person To Contact:
--------------------                                           ------------------------, ID No. ------------------
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------------------------------------------------------------   Telephone Number:
-------------------------                                      ----------------------
-----------------------------------------------                Refer Reply To:
------------------------                                       CC:FIP:B02
---------------------------------                              PLR-132226-16
                                                               Date:
                                                               January 18, 2017




Legend

Fund A                     =         -----------------------------------------------------
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Fund B                     =         ---------------------------
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Dear -------------:

      This letter revokes a part of PLR 201039002 (PLR-101134-101) issued to Funds
A and B (the “Funds”) on June 22, 2010.

         In PLR 201039002, the Internal Revenue Service (the “Service”) issued rulings
that (i) income and gain from certain commodity-linked notes constitute qualifying
income under section 851(b)(2) (the “CLN Ruling”), and (ii) subpart F income and QEF

1
 PLR-101134-10 is the controlling PLR number for a multi-filer private letter ruling. Each of Funds A and
B were assigned a separate PLR number. This letter refers to the controlling PLR number, but applies
equally to the rulings issued to both of the Funds under their respective, separately assigned PLR
numbers.
PLR-132226-16                                 2

inclusions of the Subsidiaries attributable to the Funds is other income derived from the
Funds’ business of investing in stock, securities, or currencies and, therefore,
constitutes qualifying income under section 851(b)(2) (the “Subsidiary Ruling”). In a
letter dated September 29, 2016, the Service notified the Funds that it was considering
revoking the CLN Ruling.

        Since issuing PLR 201039002, 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, the CLN Ruling in PLR 201039002 is revoked.
The Subsidiary Ruling is not revoked and that portion of PLR 201039002 remains in
effect at this time.

       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. To date, the Funds have not responded to the
September 29, 2016, letter from the Service with a request for relief under section
7805(b). Therefore, the revocation of the CLN Ruling in PLR 201039002 applies
retroactively to all years open under the statute of limitations on assessment as of the
date of this letter and to all future years.

       We are sending a copy of this letter to the appropriate operating division.

                                                  Sincerely,


                                                  Andrea M. Hoffenson
                                                  Andrea M. Hoffenson
                                                  Branch Chief, Branch 2
                                                  Office of Associate Chief Counsel
                                                  (Financial Institutions and Products)