Commodity-linked-note ruling was revoked prospectively

Plain-English summary

A fund had received a private letter 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. The fund asked the IRS to use its section 7805(b) authority to limit the effect of revocation, and the IRS granted that relief. The earlier ruling was revoked only for commodity-linked notes the fund acquired after June 30, 2017.

Ruling snapshot

• Question: Would the IRS revoke the fund's earlier commodity-linked-note ruling, and would the revocation apply retroactively?
• Outcome: revocation, limited 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: 201717025                                              Third Party Communication: None
Release Date: 4/28/2017                                        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:B03
---------------------------------------                        PLR-132130-16
                                                               Date:
                                                               January 13, 2017




Legend

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

This letter revokes PLR 201031007 (PLR-109095-10) issued to Fund on April 13, 2010,
and, in response to your request dated December 19, 2016, limits the retroactive effect
of such revocation pursuant to section 7805(b) of the Internal Revenue Code.

In PLR 201031007, 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
19, 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 201031007, 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 201031007 is revoked.
PLR-132130-16                                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 201031007 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 representatives. We are also sending a copy of this
letter to the appropriate operating division.


                                                 Sincerely,



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




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