Commodity-note ruling was revoked while Subpart F ruling remained in effect

Plain-English summary

A portfolio 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 portfolio did not request relief under section 7805(b).

Ruling snapshot

• Question: Which portions of the portfolio'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• Outcome: mixed, the commodity-linked-note ruling was revoked retroactively but the Subpart F ruling remained in effect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: 201716040                                              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:B2
                                                               PLR-132398-16
                                                               Date:
                                                               January 17, 2017

Legend

Portfolio                    =       --------------------------------------------------------
------------------------------------------------------------
-----------------------------------------------------------------------------------
----------------------------------------------------------



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

This letter revokes a part of PLR 201131001 (PLR-104670-11) issued to Portfolio on
April 18, 2011.

In PLR 201131001, 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 Subsidiaries
attributable to Portfolio is other income derived from Portfolio’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 Portfolio that it was considering revoking the CLN Ruling.

Since issuing PLR 201131001, 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 201131001 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 201131001 remains in effect at this time.
PLR-132398-16                                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. To date, Portfolio 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 201131001 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)