Commodity-linked-note ruling was revoked retroactively

Plain-English summary

A fund had received a 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 and revoked the earlier ruling. The fund did not respond to the IRS notice with a request to limit the revocation under section 7805(b). As a result, the revocation applies to every year still open under the assessment statute of limitations as of the ruling date and to all future years.

Ruling snapshot

• Question: Would the IRS revoke the fund's earlier commodity-linked-note ruling, and would the revocation apply retroactively?
• Outcome: revocation, retroactive to all open years and applicable to 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: 201717029                                              [Third Party Communication:
Release Date: 4/28/2017                                        Date of Communication: Month DD, YYYY]
Index Number: 851.02-00
                                                               Person To Contact:
---------------------------                                    ---------------------, ID No. ------------------
---------------------------------------------------            Telephone Number:
-----------------------                                        ----------------------
---------------------------------                              Refer Reply To:
                                                               CC:FIP:1
                                                               PLR-132397-16
                                                               Date:
                                                               January 13, 2017


Legend

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

This letter revokes PLR 201113015 (PLR-132742-10) issued to Fund on December 8,
2010.

In PLR 201113015, 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 Fund that it was considering revoking the CLN Ruling.

Since issuing PLR 201113015, 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 201113015 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
PLR-132397-16                                2

unless the Service uses its discretionary authority under section 7805(b) to limit the
retroactive effect of the revocation. To date, Fund has 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 201113015 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 representative. We are also sending a copy of this
letter to the appropriate operating division.

                                                 Sincerely,



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




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