Commodity-note ruling was revoked with prospective-only effect

Plain-English summary

A fund and a portfolio had received a 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 taxpayers requested relief from retroactive application under section 7805(b), and the IRS granted that request. The revocation therefore applies only to commodity-linked notes they acquired after June 30, 2017.

Ruling snapshot

• Question: Would the IRS revoke the commodity-linked-note ruling, and would the revocation apply retroactively?
• Outcome: mixed, the ruling was revoked but section 7805(b) relief limited the revocation to notes acquired after June 30, 2017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: 201716033                                              [Third Party Communication:
Release Date: 4/21/2017                                        Date of Communication: Month DD, YYYY]
Index Number: 851.02-00, 7805.00-00
                                                               Person To Contact:
--------------------                                           ------------------------, ID No. ------------------
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------------------------------------------------------------   Telephone Number:
--                                                             ----------------------
------------------------------------                           Refer Reply To:
-------------------------------------                          CC:FIP:B2
                                                               PLR-132016-16
                                                               Date:
                                                               January 13, 2017




Legend

Fund                    =            ---------------------------------------------------------------
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Portfolio               =            -------------------------------------------------------------------
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Dear ---------------:

This letter revokes PLR 200720011 (PLR-143734-061) issued to Fund and Portfolio on
February 2, 2007, and, in response to a request from your authorized representative
dated December 29, 2016, limits the retroactive effect of such revocation pursuant to
section 7805(b) of the Internal Revenue Code.

In PLR 200720011, 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

1
 PLR-143734-06 is the controlling PLR number for a multi-filer private letter ruling. Fund and Portfolio
were assigned separate PLR numbers. This letter refers to the controlling PLR number, but applies
equally to the rulings issued to Fund and Portfolio under their respective, separately assigned PLR
numbers.
PLR-132016-16                                 2

Service notified Fund and Portfolio that it was considering revoking the CLN Ruling. On
December 29, 2016, Fund and Portfolio requested that the Service exercise its
discretionary authority under section 7805(b) to limit the retroactive effect of any
revocation.

Since issuing PLR 200720011, 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 200720011 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 request from Fund and
Portfolio, the Service has decided to grant relief under section 7805(b). The revocation
of PLR 200720011 will apply prospectively only to commodity-linked notes acquired by
Fund and Portfolio 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 Fund and Portfolio authorized representatives. We are also sending a
copy of this letter to the appropriate operating division.

                                                  Sincerely,



                                                  Pamela Lew
                                                  Pamela Lew
                                                  Senior Counsel, Branch 2
                                                  Office of Associate Chief Counsel
                                                  (Financial Institutions and Products)