Commodity-linked note ruling revoked prospectively

Plain-English summary

Two regulated investment company funds had obtained a 2006 ruling that income and gain from certain commodity-linked notes qualified under IRC § 851(b)(2). The IRS later concluded that issuing a private ruling on that question no longer matched its current views and revoked the earlier ruling. Ordinarily, revocation would apply to every open tax year. Exercising its discretion under IRC § 7805(b), however, the IRS limited the revocation to commodity-linked notes the funds acquired after June 30, 2017.

Ruling snapshot

• Question: Should revocation of the funds' prior commodity-linked note ruling apply retroactively?
• Outcome: Revocation. The prior ruling was revoked, but only prospectively for notes acquired after June 30, 2017.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: 201719021 [Third Party Communication:
Release Date: 5/12/2017 Date of Communication: Month DD, YYYY]
Index Number: 851.02-00, 7805.00-00
Person To Contact:
-------------------------- ------------------------, ID No. ------------------
------------------------------- ----------------------------------------------------
-------------------------------------------------- Telephone Number:
------------------------------ ----------------------
------------------------------ Refer Reply To:
CC:FIP:B2
PLR-131937-16
Date:
February 10, 2017

Legend

Fund A = --------------------------------------------------

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Fund B = -----------------------------------------------------------------

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

This letter revokes PLR 200637018 (PLR-123928-061) issued to Funds A and B (the
“Funds”) on June 1, 2006, and, in response to a request from your authorized
representative dated October 20, 2016, limits the retroactive effect of such revocation
pursuant to section 7805(b) of the Internal Revenue Code.

In PLR 200637018, 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 the Funds that it was considering revoking the CLN Ruling. On October
20, 2016, the Funds requested that the Service exercise its discretionary authority
under section 7805(b) to limit the retroactive effect of any revocation.

1
PLR-123928-06 is the controlling PLR number for a multi-filer private letter ruling. Each of Funds A and
B were assigned a separate PLR number. This letter refers to the controlling PLR number, but applies
equally to the rulings issued to both Funds under their respective, separately assigned PLR numbers.
PLR-131937-16 2

Since issuing PLR 200637018, 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 200637018 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 Funds’ request, the Service
has decided to grant relief under section 7805(b). The revocation of PLR 200637018
will apply prospectively only to commodity-linked notes acquired by the Funds 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 the Funds’ authorized representative. We are also 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)