Commodity-note ruling was prospectively revoked while Subpart F ruling remained

Plain-English summary

A fund had received an earlier ruling with separate conclusions for commodity-linked-note income and specified Subpart F income 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 fund requested relief under section 7805(b), and the IRS limited the revocation to commodity-linked notes acquired after June 30, 2017. The earlier Subpart F conclusion remained in effect.

Ruling snapshot

• Question: Which part of the fund's earlier ruling would be revoked, and would that revocation apply retroactively?
• Outcome: mixed, the commodity-linked-note ruling was revoked prospectively but the Subpart F ruling remained in effect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: 201716036                                              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-132314-16
                                                               Date:
                                                               January 13, 2017




Legend

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

This letter revokes a part of PLR 201104013 (PLR-123164-10) issued to Fund on
October 20, 2010, 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 201104013, 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 of the Subsidiary
attributable to Fund is other income derived from Fund’s business of investing in stock,
securities, or currencies and, therefore, constitutes qualifying income under section
851(b)(2) (the “Subpart F 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 201104013, 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
PLR-132314-16                                2

or modified. Accordingly, the CLN Ruling in PLR 201104013 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 201104013 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. In accordance with Fund’s request, the Service has
decided to grant relief under section 7805(b). The revocation of the CLN Ruling in PLR
201104013 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,



                                                 -------------------------------------------
                                                 Pamela Lew
                                                 Senior Counsel, Branch 2
                                                 Office of Associate Chief Counsel
                                                 (Financial Institutions and Products-)