Commodity-linked-note ruling was revoked retroactively

Plain-English summary

Eight funds 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 and revoked the earlier ruling. The funds did not respond to the IRS notice with a request to limit the revocation under section 7805(b). As a result, the revocation applies to every year still open under the assessment statute of limitations as of the ruling date and to all future years.

Ruling snapshot

• Question: Would the IRS revoke the funds' earlier commodity-linked-note ruling, and would the revocation apply retroactively?
• Outcome: revocation, retroactive to all open years and applicable to future years
• 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: 201717033                                              Third Party Communication: None
Release Date: 4/28/2017                                        Date of Communication: Not Applicable
Index Number: 851.02-00
                                                               Person To Contact:
---------------------                                          ------------------------, ID No. ------------------
--------------                                                 ----------------------------------------------------
-----------------------------------                            Telephone Number:
--------------------------                                     ----------------------
------------------------------                                 Refer Reply To:
                                                               CC:FIP:B02
                                                               PLR-133175-16
                                                               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-133175-16                                             2

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Fund G                      =        ------------------------------------------------------
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Fund H                     =         --------------------------------------------
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Dear ------------------:

This letter revokes PLR 200726026 (PLR-156626-061) issued to Funds A, B, C, D, E, F,
G, and H (the “Funds”) on March 16, 2007.

In PLR 200726026, 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 the Funds that it was considering revoking the CLN Ruling.

Since issuing PLR 200726026, 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 200726026 is revoked.

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, 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 PLR 200726026 applies retroactively to all years

1
 PLR-156626-06 is the controlling PLR number for a multi-filer private letter ruling. Each of Funds A, B,
C, D, E, F, G, and H 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-133175-16                                 3

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,


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


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