Commodity-linked-note ruling was retroactively 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's representatives said the fund would not request relief under section 7805(b), so the commodity-linked-note revocation applies to all years still open under the assessment statute of limitations and to all future years.

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 retroactively 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: 201717027                                              Third Party Communication: None
Release Date: 4/28/2017                                        Date of Communication: Not Applicable
Index Number: 851.02-00
                                                               Person To Contact:
-------------------------                                      ----------------, ID No. ------------------
-------------------------------                                Telephone Number:
-----------------------------------------------                ----------------------
-------------------------------------------------              Refer Reply To:
-------------------------                                      CC:FIP:B03
                                                               PLR-132253-16
                                                               Date:
                                                               January 17, 2017




Legend

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

This letter revokes a part of PLR 201102055 (PLR-129557-10) issued to Fund on
September 22, 2010.

In PLR 201102055, 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 a subsidiary
attributable to Fund is other income derived from Fund’s business 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 Fund that it was considering revoking the CLN Ruling.

Since issuing PLR 201102055, 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 201102055 is revoked. The Subpart F
Ruling is not revoked and that portion of PLR 201102055 remains in effect at this time.
PLR-132253-16                                2

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. On November 14, 2016, Fund’s authorized
representatives informed the Service that Fund would not request relief under section
7805(b) at this time. Therefore, the revocation of the CLN Ruling in PLR 201102055
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.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to Fund’s authorized representatives. We are also sending a copy of this
letter to the appropriate operating division.

                                                 Sincerely,



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




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