Commodity-note ruling was revoked while Subpart F ruling remained in effect

Plain-English summary

A fund had received an earlier ruling with two conclusions under section 851(b)(2). One treated income and gain from certain commodity-linked notes as qualifying income, while the other treated specified Subpart F income as qualifying income. The IRS revoked only the commodity-linked-note conclusion because issuing a private ruling on that question no longer reflected its current position. The Subpart F conclusion remained in effect, while the commodity-linked-note revocation applied to all open years and future years because the fund did not request relief under section 7805(b).

Ruling snapshot

• Question: Which portions of the fund's earlier qualifying-income ruling would the IRS revoke?
• Outcome: mixed, the commodity-linked-note ruling was revoked retroactively but the Subpart F ruling remained in effect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: 201716037                                                Third Party Communication: None
Release Date: 4/21/2017                                          Date of Communication: Not Applicable
Index Number: 851.02-00
                                                                 Person To Contact:
-----------------                                                ----------------, ID No. ------------------
----------------------------------                               Telephone Number:
-----------------------                                          ----------------------
--------------------------                                       Refer Reply To:
--------------------------------------------                     CC:FIP:B03
--------------------------------------------                     PLR-132386-16
                                                                 Date:
                                                                 January 13, 2017




Legend

Fund                     =          ---------------------------------------------------------------------------------
                                    ------------------

Trust                    =           -------------------------
------------------------------------------------------------




Dear ------------:

This letter revokes a part of PLR 201107012 (PLR-119215-10) issued to Fund, a series
of Trust, on September 21, 2010.

In PLR 201107012, 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 subsidiaries
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.

Since issuing PLR 201107012, 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
PLR-132386-16                                2

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 201107012 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 201107012 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, Fund has 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 201107012 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,




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