Commodity-linked-note ruling was revoked prospectively

Plain-English summary

Two 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. The funds 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 The earlier ruling was revoked only for commodity-linked notes the funds acquired after June 30, 2017.

Ruling snapshot

• Question: Would the IRS revoke the funds' 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: 201717034                                              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-133183-16
                                                               Date:
                                                               January 18, 2017


Legend

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

This letter revokes PLR 201108003 (PLR-121621-101) issued to Funds A and B (the
“Funds”) on November 9, 2010, and, in response to a request from your authorized
representative dated November 22, 2016, limits the retroactive effect of such
revocation pursuant to section 7805(b) of the Internal Revenue Code.

In PLR 201108003, 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 28, 2016, the
Service notified the Funds that it was considering revoking the CLN Ruling. On


1
  PLR-121621-10 is the controlling PLR number for a multi-filer private letter ruling. Funds A and B were
assigned separate PLR numbers. This letter refers to the controlling PLR number, but applies equally to
the rulings issued to both of the Funds under their respective, separately assigned PLR numbers.
PLR-133183-16                                 2

November 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 201108003, 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 201108003 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. In accordance with the Funds’ request, the Service
has decided to grant relief under section 7805(b). The revocation of PLR 201108003
will apply prospectively only to commodity-linked notes acquired by the Funds 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 the Funds’ authorized representatives. We are also sending a copy of
this letter to the appropriate operating division.


                                                  Sincerely,


                                                  ______________________________
                                                  Julanne Allen
                                                  Assistant Branch Chief, Branch 3
                                                  Office of Associate Chief Counsel
                                                  (Financial Institutions and Products)


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