Commodity-linked-note income ruling was revoked retroactively

Plain-English summary

Two funds had received a 2009 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, citing updated revenue procedures and proposed regulations. Because the funds did not request protection under section 7805(b), the IRS revoked the earlier ruling for every assessment year still open on the new letter's date and for all future years. The revocation applied to both funds covered by the original multi-filer ruling.

Ruling snapshot

• Question: Would the IRS leave in place its earlier ruling that certain commodity-linked-note income qualified under section 851(b)(2)?
• Outcome: revocation, retroactive for all open years and prospective for 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: 201718032                                              Third Party Communication: None
Release Date: 5/5/2017                                         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:B2
                                                               PLR-132103-16
                                                               Date:
                                                               January 17, 2017


Legend

Fund 1                    =          --------------------------------------------------------------------------------
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Fund 2                     =         -------------------------------------------------------------------------
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Dear -------------------:

       This letter revokes PLR 200952019 (PLR-120680-091) issued to Funds 1 and 2
(the “Funds”) on September 14, 2009.

        In PLR 200952019, 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 200952019, 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

1
 PLR-120680-09 is the controlling PLR number for a multi-filer private letter ruling. Each of Funds 1 and
2 were assigned a separate PLR number. This letter refers to the controlling PLR number, but applies
equally to the rulings issued to both Funds under their respective, separately assigned PLR numbers.
PLR-132103-16                                 2

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 200952019 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, 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 PLR 200952019 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.

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

                                                  Sincerely,


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