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

Plain-English summary

Six 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. The funds also received section 7805(b) relief, limiting the revocation to commodity-linked notes acquired after June 30, 2017.

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 prospectively 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: 201717031                                              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:
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-----------------------------                                  Refer Reply To:
                                                               CC:FIP:B2
                                                               PLR-132656-16
                                                               Date:
                                                               January 18, 2017


Legend

Fund A                     =         --------------------------------------------------------------------------------
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Fund B                     =         ----------------------------------------------------------------------
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Fund C                     =         -------
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Fund D                     =        ---------------------------------------------------------------------------------
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Fund E                     =        -----------------------------------------------------------------------
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Fund F                     =        ---------------------------------------------------------------------------------
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PLR-132656-16                                             2

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

       This letter revokes a part of PLR 201034011 (PLR-147697-091) issued to Funds
A, B, C, D, E, and F (the “Funds”) on April 23, 2010, and, in response to a request from
your authorized representative dated December 22, 2016, limits the retroactive effect of
such revocation pursuant to section 7805(b) of the Internal Revenue Code.

         In PLR 201034011, 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 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. On December 22, 2016, the Funds requested that the Service exercise its
discretionary authority under section 7805(b) to limit the retroactive effect of any
revocation.

        Since issuing PLR 201034011, 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 201034011 is revoked.
The Subpart F Ruling is not revoked and that portion of PLR 201034011 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 the Funds’ request, the Service
has decided to grant relief under section 7805(b). The revocation of the CLN Ruling in
PLR 201034011 will apply prospectively only to commodity-linked notes acquired by the
Funds after June 30, 2017.

1
 PLR-147697-09 is the controlling PLR number for a multi-filer private letter ruling. Each of Funds A, B,
C, D, E, and F 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-132656-16                               3




      We are sending a copy of this letter to the appropriate operating division.

                                                Sincerely,



                                                -------------------------------------------
                                                Jason G. Kurth
                                                Assistant to the Branch Chief, Branch 1
                                                Office of Associate Chief Counsel
                                                (Financial Institutions and Products)




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