Commodity-linked-note ruling was prospectively revoked while subsidiary ruling remained effective

Plain-English summary

A fund had received rulings that income from certain commodity-linked notes and income from an investment in a subsidiary 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 subsidiary-income ruling was not revoked and remained effective. The fund also received section 7805(b) relief, limiting the commodity-linked-note revocation to notes acquired after June 30, 2017.

Ruling snapshot

• Question: Which parts of the fund's 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 subsidiary-income 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: 201717020                                              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. ------------------
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------------------------------------------------------------   Telephone Number:
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--------                                                       Refer Reply To:
----------------------------------                             CC:FIP:B2
--------------------------------                               PLR-131671-16
                                                               Date:
                                                               January 17, 2017




Legend

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

       This letter revokes a part of PLR 200647017 (PLR-125782-06) issued to Fund on
August 10, 2006, and, in response to your request dated November 30, 2016, limits the
retroactive effect of such revocation pursuant to section 7805(b) of the Internal Revenue
Code.

         In PLR 200647017, 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) income derived by Fund
from its investment in the Subsidiary, whether or not attributable to subpart F income, is
income derived from the Fund’s business of investing in stock, securities, or currencies
and, therefore, constitutes qualifying income under section 851(b)(2) (the “Subsidiary
Ruling”). In a letter dated September 29, 2016, the Service notified Fund that it was
considering revoking the CLN Ruling. On November 30, 2016, Fund requested that the
Service exercise its discretionary authority under section 7805(b) to limit the retroactive
effect of any revocation.
PLR-131671-16                                 2

        Since issuing PLR 200647017, 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 200647017 is revoked.
The Subsidiary Ruling is not revoked and that portion of PLR 200647017 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 Fund’s request, the Service has
decided to grant relief under section 7805(b). The revocation of the CLN Ruling in PLR
200647017 will apply prospectively only to commodity-linked notes acquired by Fund
after June 30, 2017.

       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)