Commodity-linked-note ruling was retroactively revoked while Subpart F ruling remained effective

Plain-English summary

Two funds had received rulings that income from certain commodity-linked notes and certain Subpart F income counted as qualifying income under section 851(b)(2). The IRS later concluded that issuing a private ruling on the commodity-linked-note question no longer reflected its current position, so it revoked that portion of the earlier ruling. The Subpart F ruling was not revoked and remained effective. Because the funds did not request relief under section 7805(b), the commodity-linked-note revocation applies to all years still open under the assessment statute of limitations and to all future years.

Ruling snapshot

• Question: Which parts of the funds' earlier qualifying-income ruling would be revoked, and would the revocation apply retroactively?
• Outcome: mixed, the commodity-linked-note ruling was retroactively revoked, while the Subpart F ruling remained effective
• 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: 201717028                                              [Third Party Communication:
Release Date: 4/28/2017                                        Date of Communication: Month DD, YYYY]
Index Number: 851.02-00
                                                               Person To Contact:
--------------------                                           ---------------------, ID No. ------------------
-----------------                                              Telephone Number:
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---------------------------                                    Refer Reply To:
---------------------------------                              CC:FIP:B1
------------------------------                                 PLR-132308-16
                                                               Date:
                                                               January 13, 2017




Legend

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

This letter revokes a part of PLR 201103033 (PLR-134355-101) issued to Funds A and
B (the “Funds”) on October 12, 2010.

In PLR 201103033, 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

1
 PLR-134355-10 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 all of the Funds under their respective, separately assigned PLR numbers.
PLR-132308-16                                 2

attributable to the Funds is other income derived from the Funds’ businesses 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 the Funds that it was considering revoking the CLN Ruling.

Since issuing PLR 201103033, 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 201103033 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 201103033 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 201103033 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.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to the Funds’ authorized representatives. 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)




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