Commodity-linked-note ruling was prospectively revoked while Subpart F ruling remained effective

Plain-English summary

A fund had received rulings that income from certain commodity-linked notes and certain Subpart F income 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 Subpart F 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 Subpart F 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: 201717022                                              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:B2
                                                               PLR-131874-16
                                                               Date:
                                                               January 18, 2017


Legend

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

This letter revokes a part of PLR 200939017 (PLR-146785-08) issued to Fund on June
4, 2009, and, in response to a request from your authorized representative dated
November 3, 2016, limits the retroactive effect of such revocation pursuant to section
7805(b) of the Internal Revenue Code.

In PLR 200939017, 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) subpart F income of the Subsidiaries
attributable to the Fund is other income derived from the Fund’s businesses of investing
in stock, securities, or currencies and, therefore, constitutes qualifying income under
section 851(b)(2) (the “Subpart F Ruling”). In a letter dated September 29, 2016, the
Service notified the Fund that it was considering revoking the CLN Ruling. On
November 3, 2016, the Fund requested that the Service exercise its discretionary
authority under section 7805(b) to limit the retroactive effect of any revocation.

Since issuing PLR 200939017, 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,
PLR-131874-16                                 2

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 200939017 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 200939017 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 the Fund’s request, the Service
has decided to grant relief under section 7805(b). The revocation of the CLN Ruling in
PLR 200939017 will apply prospectively only to commodity-linked notes acquired by the
Fund after June 30, 2017.

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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