internal_revenue_service number release date index number ------------------ --------------------------------------------------------- --------------- ----------------------- ---------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ----------------------- telephone number -------------------- refer reply to cc intl b05 plr-106587-15 date august legend a ----------------------- cfc ------------------------------------------------------------------------------------- country a --------- parent --------------- us sub ---------------------------------------------- corp a ------------------------------------------------------- corp b -------------------------------------------------------- corp c --------------------------------------------- branch ------------------ branch ---------------------- regulator ---------------------------------------- regulation --------------------------- day x ------------------ dear --------------- in a letter dated a you requested a ruling allowing cfc to use certain foreign statement insurance reserves in computing foreign_personal_holding_company_income under sec_954 on the grounds that these insurance reserves are an appropriate means of measuring income within the meaning of sec_954 specifically you requested permission to use the underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves for life_insurance and annuity_contracts reported by cfc on its country a annual report the underwriting reserves loss_reserves and premiums_paid in advance reserves attributable to its plr-106587-15 noncancellable and guaranteed renewable accident and health a h contracts reported by cfc on its country a annual report and the underwriting reserves loss_reserves and associated asset bases attributable to cfc’s separate account-type contracts as reported on the country a annual report the rulings given in this letter are based on facts and representations submitted by parent and accompanied by a statement executed under penalty of perjury by an appropriate party this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts parent is a publicly-traded domestic_corporation that is engaged through its subsidiaries in various lines of business which primarily include life_insurance a h insurance credit insurance annuities endowment and retirement and savings products parent directly and indirectly owns all the stock of us sub us sub owns all of the stock of corp a corp a owns all of the stock of corp b corp b owns all of the stock of corp c corp c owns all of the stock of cfc parent represents that cfc is a controlled_foreign_corporations as defined in sec_957 cfc currently has two branches branch and branch collectively branches cfc is engaged in the life_insurance business in country a and its principal products are traditional life both term_insurance and permanent insurance variable whole life that employ separate_account funds variable universal whole life variable universal life savings products with guaranteed death_benefits variable annuities with guaranteed death and living benefits fixed annuities interest sensitive life and annuity products a h insurance and retirement insurance for both companies and individuals country a regulates any insurance_business conducted in country a through its insurance laws and regulations regulator developed and is responsible for enforcing insurance laws and regulations in country a an insurance_company must obtain a license from the regulator to conduct an insurance_business in country a cfc is licensed by the regulator to sell life_insurance and annuity_contracts to persons in country a and is subject_to regulation by regulator as a life_insurance_company cfc does not carry on business other than life_insurance and certain activities that are incidental to the life_insurance business cfc derives greater than percent of its aggregate net written premiums from the issuance of life_insurance and annuity_contracts covering applicable_home_country_risks no policyholder insured annuitant or beneficiary to a life_insurance or annuity_contract that the cfc issues is a related_person as defined in sec_954 parent has represented that cfc would be subject_to tax under subchapter_l if it were a domestic_corporation plr-106587-15 branches are each separate and clearly identified units of the insurance_business of cfc that maintain separate books_and_records branches are authorized or licensed by the applicable_insurance_regulatory_body for their home_country to sell insurance to persons other than related_persons with the meaning of sec_954 in such home_country while each branch is authorized or licensed by the country in which it is located each branch’s financial position is overseen by regulator cfc issues health and personal accident insurance contracts that are noncancellable or guaranteed renewable cancellable or riders to a life_insurance_contract cfc’s noncancellable and guaranteed renewable a h policies create a contingent long-term obligation with an age termination_date of age or older comparable to the obligation created under a whole-life insurance_policy for country a tax and insurance regulatory purposes cfc treats its noncancellable and guaranteed renewable a h policies as life_insurance policies treats its underwriting reserves and loss_reserves attributable to noncancellable and guaranteed renewable a h policies as life_insurance_reserves and computes the underwriting reserves and loss_reserves on such noncancellable and guaranteed renewable a h insurance policies using a methodology similar to that of life_insurance_policy reserves cfc also issues separate account-type variable life_insurance and annuity_contracts which are separately identified and maintained and are supported by separately identifiable pools of assets the assets in the pools are marked to market for local regulatory reporting purposes and the associated reserve follows movements in the value of the assets with very limited exceptions such as surrender charges for country a tax and insurance regulatory purposes cfc is required to make asset basis and reserve-related adjustments to its separate_accounts including premiums received but not yet allocated to the separate_accounts as required by country a’s insurance laws and regulations cfc files an annual report and financial statements with the regulator the annual report is audited by an external accounting firm in addition to the company’s internal auditor the accounting_records of cfc that form the basis for preparing the annual report are subject_to inspection by the regulator at any time the annual report is made available to the public in additional to their use for regulatory purposes the annual report is used for financial purposes such as country a credit rating by lenders and the public day x is the official year-end for life_insurance_companies operating in country a to comply with country a’s insurance laws cfc must establish and maintain reserves for its obligations to holders of its life_insurance and annuity_contracts and must report the amount of such reserves on the country a annual report the reserves at issue in the ruling_request are limited to the underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves that cfc maintains on its country a annual report for life_insurance or annuity_contracts plr-106587-15 cfc has appointed a qualified actuary that satisfies the requirements put forth by regulator to handle the actuarial matters of the insurance undertaking including the method of calculating reserves the actuary has knowledge and experience concerning actuarial matters for a company in country a engaged in the insurance_business the reserve system for country a includes the following requirements as to assumptions and method for underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves with respect to life_insurance and annuity_contracts issued by cfc underwriting reserves do not follow a prescribed methodology and assumptions but instead follow the general guidelines of regulation currently cfc generally holds life_insurance_reserves determined using the net_level_premium method or the zillmer method for account value-based products the account value is held cfc also holds loss_reserves for outstanding claims including claims that have been incurred but not reported under contracts issued by cfc and calculates the reserves using the company’s individual loss experience in accordance with the rules and regulations prescribed by regulator the policyholders’ dividend reserves are reserves for dividends that have been declared and that have been paid or credited and that have not been withdrawn by policyholders the premiums_paid in advance reserves include any premium that had been paid but whose due_date falls in the following year parent represents that cfc is not engaged in any insurance_business outside of country a except through branches and does not carry on non-life insurance_business with regards to a h policies the ruling_request only applies to noncancellable life health or accident insurance policies within the meaning of sec_1_801-3 or guaranteed_renewable_life health and accident insurance policies within the meaning of sec_1_801-3 and each contract covered by the rulings requested is a life_insurance_contract or annuity_contract for federal_income_tax purposes without regard to sec_72 sec_101 sec_817 and sec_7702 the reserves covered by this ruling do not include deficiency_reserves contingency reserves equalization reserves excess_interest reserves for excess_interest credited beyond the end of the taxable_year reserves for administrative expenses including guarantees intended to cover future expenses associated with the payment of claims such as bank fees or inflation risk reserves for any amount to protect against a future decline in the value of investment_assets or any reserves for accrued liabilities law in general a united_states_shareholder of a controlled_foreign_corporation cfc must include in gross_income its pro_rata share of the cfc’s subpart_f_income for each year subpart_f_income includes among other types of income insurance_income under sec_953 and foreign_base_company_income under sec_954 plr-106587-15 sec_953 defines the term_insurance income to include any income which is attributable to issuing or reinsuring of an insurance_or_annuity_contract and which would be taxed under subchapter_l if such income were the income of a domestic insurance_company sec_953 provides that sec_953 insurance_income does not include exempt_insurance_income derived by a qualifying_insurance_company sec_953 provides that reserves for any insurance_or_annuity_contract shall be determined in the same manner as under sec_954 sec_953 defines exempt_insurance_income as income derived by a qualifying_insurance_company which is attributable to the issuing or reinsuring of an exempt_contract by such company and such income is treated as earned by such company in its home_country for purposes of such country’s tax laws exempt contracts are defined under sec_953 to include insurance or annuity_contracts issued by a qualifying_insurance_company in connection with the lives or health of residents of a country other than the u s but only if such company derives more than percent of its net written premiums from otherwise exempt contracts which cover applicable_home_country_risks and with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 in general sec_953 defines a qualifying_insurance_company as any cfc that a is subject_to regulation as an insurance_company by its home_country and is licensed authorized or regulated by the applicable_insurance_regulatory_body for its home_country to sell insurance or annuity_contracts to persons other than related_persons within the meaning of sec_954 in such home_country b derives more than percent of its aggregate net written premiums from the issuance by such controlled_foreign_corporation of contracts covering applicable_home_country_risks of such corporation and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in sec_954 and c is engaged in the insurance_business and would be subject_to tax under subchapter_l if it were a domestic_corporation sec_954 defines the term foreign_base_company_income to include among other types of income foreign_personal_holding_company_income sec_954 sets forth the types of income that are considered to be foreign_personal_holding_company_income sec_954 provides that for purposes of sec_954 foreign_personal_holding_company_income does not include qualified_insurance_income of a qualifying_insurance_company sec_954 defines the term qualified_insurance_income to mean income of a qualifying_insurance_company falling into two categories first income received from unrelated persons and derived from investments made by a qualifying_insurance_company or qualifying_insurance_company_branch collectively referred to as a qic either of its reserves allocable to exempt contracts or of percent of its unearned premiums from exempt contracts as both are determined in accordance with sec_954 second income received from unrelated persons and derived from plr-106587-15 investments made by a qic of an amount of its assets allocable to exempt contracts equal to in the case of property casualty or health insurance contracts one-third of the premiums earned on those contracts during such year and in the case of life_insurance or annuity_contracts percent of the reserves described in sec_954 for such contracts sec_816 defines the term life_insurance_company as an insurance_company that is engaged in the business of issuing life_insurance and annuity_contracts either separately or combined with accident_and_health_insurance or noncancellable contracts of health and accident insurance if its life_insurance_reserves plus unearned premiums and unpaid_losses whether or not ascertained on noncancellable life accident or health policies not included in life_insurance_reserves comprise more than percent of its total_reserves for purposes of the preceding sentence insurance_company means any company more than half of the business of which during the taxable_year is the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies sec_816 defines the term life_insurance_reserve as amounts a computed or estimated on the basis of recognized mortality or morbidity tables and assumed rates of interest and b that are set_aside to mature or liquidate either by payment or reinsurance future unaccrued claims arising from life_insurance annuity and noncancellable accident_and_health_insurance contracts including life_insurance or annuity_contracts combined with noncancellable accident_and_health_insurance involving at the time with respect to which the reserve is computed life accident or health contingencies sec_817 generally provides special rules for certain variable_contracts for purposes of part i of subchapter_l of the code sec_817 defines a variable_contract as any contract that provides for the allocation of all or part of the amounts received under the contract to an account which pursuant to state law is segregated from the general asset accounts of the company and provides for the payment of annuities is a life_insurance_contract or provides funding for insurance on retired lives if a contract satisfies the variable_contract requirements and the separate_account that funds the variable_contract is treated as a segregated_asset_account sec_817 requires that certain adjustments be made to the insurance company’s asset basis and insurance tax_reserves with respect to the segregated_asset_account sec_817 provides that with respect to any variable_contract reserves are adjusted by subtracting an amount equal to the sum of the amounts added from time to time for the taxable_year to the reserves separately accounted for by reason of appreciation in value of assets whether or not the assets have been disposed of and by adding thereto an amount equal to the sum of the amounts subtracted from time to time for the taxable_year from such reserves by reason of depreciation in value of assets plr-106587-15 under sec_817 the basis of each asset in a segregated_asset_account is increased or decreased by the amount of appreciation or depreciation respectively to the extent the reserves or other items referred to in sec_817 are adjusted the asset basis and insurance tax reserve adjustments offset any realized gain loss attributable to such marked assets at the insurance_company level sec_954 imposes separate contract treatment for separate account-type contracts a term which includes contracts not meeting the requirements of sec_817 sec_954 provides that for purposes of applying sec_954 and with respect to any separate account-type contract including any variable_contract not meeting the requirements of sec_817 income credited under such contract is allocable only to such contract income not allocable to a separate account-type contract is allocated ratably among contracts sec_954 generally provides that in the case of life_insurance and annuity_contracts a qic’s reserves allocable to exempt contracts are equal to the greater of the net_surrender_value of the contract or the reserve determined under sec_954 sec_954 however provides the amount of the reserves under sec_954 shall be the foreign statement reserve for the contract less any catastrophe deficiency equalization or similar reserves if pursuant to a ruling_request submitted by the taxpayer or as provided in published guidance the secretary determines that the factors taken into account in determining the foreign statement reserve provide an appropriate means of measuring income sec_954 was originally enacted by sec_614 of the job creation and worker assistance act of under the protecting americans from tax hikes path act of p l sec_954 was permanently extended and made effective for taxable years of foreign_corporations beginning after date and for taxable years of u s shareholders with or within which such taxable years of such foreign_corporations end in its technical explanation to the path act the staff of the joint_committee on taxation explains sec_954 as follows the provision does however permit a taxpayer in certain circumstances subject_to approval by the irs through the ruling process or in published guidance to establish that the reserve for such contracts is the amount taken into account in determining the foreign statement reserve for the contract reduced by catastrophe equalization or deficiency reserve or any similar reserve irs approval is to be based on whether the method the interest rate the mortality and morbidity assumptions and any other factors taken into account in determining foreign statement reserves taken together or separately provide an appropriate means of measuring income for federal_income_tax purposes plr-106587-15 joint comm on taxation technical explanation of the revenue provisions of the protecting americans from tax hikes act of house amendment to the senate amendment to h_r rules committee print jcx-144-15 date analysis cfc is subject_to regulation as a life_insurance_company by country a cfc is licensed authorized and regulated by the regulator which is the insurance regulatory body for country a to sell life_insurance and annuity_contracts to persons other than related_persons within the meaning of sec_954 in country a parent has represented that cfc derives more than percent of its aggregate net written premiums from the issuance by cfc and branches of life_insurance and annuity_contracts covering applicable_home_country_risks and with respect to which no policyholder insured annuitant or beneficiary is a related_person as defined in sec_954 parent has also represented that cfc is engaged in the life_insurance business and would be subject_to tax under subchapter_l if they were domestic corporations branches are qualified_business units within the meaning of sec_989 of cfc each branch is authorized or licensed by the applicable_insurance_regulatory_body for its home_country to sell insurance to persons other than related_persons within the meaning of sec_954 in such home_country premiums received by branches are treated as earned by each branch in its home_country for purposes of such country’s tax laws accordingly cfc is a qic under sec_953 and the branches are qualifying_insurance_company branches under sec_953 cfc issues life_insurance and annuity_contracts in connection with the lives and health of residents of country a a country other than the united_states the branches issue life_insurance and annuity_contracts in connection with the lives and health of resident of their respective home_country cfc derives more than percent of its net written premiums from contracts that cover country a risks with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 each branch also derives more than percent of its net written premiums from contracts that cover home_country risks with respect to which no policyholder insured annuitant or beneficiary is a related_person within the meaning of sec_954 life_insurance and annuity_contracts issued by cfc including branches are therefore exempt contracts within the meaning of sec_953 cfc must establish maintain and calculate its underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves in accordance with the insurance laws and regulations prescribed by the regulator the regulator generally requires a life_insurance_company to determine the amount of its underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves based on guidance provided by the regulator cfc must set forth its underwriting reserves loss_reserves policyholders’ dividend reserves and premiums plr-106587-15 paid in advance reserves on the country a annual report which must be filed annually with the regulator these reserves are the measure of the legal obligations to policyholders on the financial statement used for regulatory purposes by life_insurance_companies doing business in country a whether u s -owned locally owned or owned by companies headquartered in other foreign countries the regulator requires cfc to hold its underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves for the fulfillment of claims owed to policyholders and beneficiaries the reserves are not catastrophe deficiency equalization or similar reserves under the rules prescribed by the regulator for determining reserves required to be calculated for purposes of the country a annual report the method interest rate the mortality and morbidity assumptions and other factors taken into account provide an appropriate means of measuring income within the meaning of sec_954 cfc issues noncancellable and guaranteed renewable a h contracts and riders to life_insurance contracts as part of its life_insurance business for country a tax and insurance regulatory purposes cfc computes the underwriting reserves loss_reserves and premiums_paid in advance reserves on these policies using a methodology similar to that used to compute life_insurance_reserves the treatment of noncancellable and guaranteed renewable a h contracts as life_insurance contracts the reserves for which are computed as life_insurance_reserves is consistent with the treatment of such reserves for standard actuarial local regulatory local_tax and u s gaap purposes under the rules prescribed by the regulator for determining reserves required to be calculated for purposes of the country a annual report the method interest rate the mortality and morbidity assumptions and other factors taken into account provide an appropriate means of measuring income within the meaning of sec_954 for country a insurance regulatory purposes cfc is required to mark to market its portfolio investment_assets held pursuant to its separate account-type contracts to adjust the bases of its marked portfolio investment_assets to fair_market_value and to adjust its underwriting reserves and loss_reserves in order to offset any realized gain_or_loss attributable to the marked assets the asset basis and reserve-related adjustments prevent cfc from reporting distortions in the amount and timing of its income on its country a annual report to the regulator this method clearly reflects income as does the rules provided by sec_817 for domestic insurance_companies taxed under subchapter_l under the rules prescribed by the regulator for determining reserves required to be calculated for purposes of the country a annual report the method interest rate the mortality and morbidity assumptions and other factors taken into account provide an appropriate means of measuring income within the meaning of sec_954 based on the information submitted and the representations made we rule as follows ruling plr-106587-15 under the facts set forth above the foreign statement underwriting reserves loss_reserves policyholders’ dividend reserves and premiums_paid in advance reserves maintained by cfc with respect to its exempt life_insurance or annuity_contracts are an appropriate means of measuring income within the meaning of sec_954 and may be used in determining the foreign_personal_holding_company_income of cfc under sec_954 under the facts set forth above the foreign statement underwriting reserves loss_reserves and premiums_paid in advance reserves maintained by cfc for its noncancellable and guaranteed renewable accident and health contracts are an appropriate means of measuring income within the meaning of sec_954 and may be used in determining the foreign_personal_holding_company_income of cfc under sec_954 under the facts set forth above the foreign statement underwriting reserves loss_reserves and associated asset bases attributable to cfc’s separate_account contracts are an appropriate means of measuring income within the meaning of sec_954 and may be used in determining the foreign_personal_holding_company_income of cfc under sec_954 caveats we express no opinion on any provisions of the code or regulations not specifically covered by the above ruling this ruling will be subject_to revocation if any of the following circumstances occurs a change in the material facts on which this ruling was based a material_change in the business circumstances of cfc which would impact its reserving method or a change in the applicable law or foreign rules relating to the current reserving method of cfc procedural statements this ruling is directed only to cfc sec_6110 provides that it may not be used or cited as precedent except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-106587-15 a copy of this letter must be attached to any income_tax return to which it is relevant alternatively taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter_ruling sincerely mark e erwin branch chief branch office of associate chief_counsel international cc


internal_revenue_service number release date index number ------------------ ----------------------------- ----------------------------------------- ------------------------------------------- ----------------------------- department of the treasury washington dc person to contact ---------------------- id no ------------- telephone number --------------------- refer reply to cc fip plr-120207-10 date date legend fund trust state country type x company date dear ----------- ---------------------------------------------------------------------------------------- ---------------------- ---------------- ------------- ---------------------- -------------------------- ------------------ this responds to your letter dated date submitted by your authorized representative on behalf of the fund the fund requests that the internal_revenue_service rule that income derived by the fund from its investment in a wholly owned subsidiary would constitute qualifying_income to the fund under sec_851 of the internal_revenue_code_of_1986 as amended the code facts the fund is a separate series of trust a statutory trust organized under the laws of state trust is an open-end management investment_company registered under the plr-120207-10 investment_company act of u s c 80a-1 et seq as amended the act the fund represents that it qualifies as a regulated_investment_company ric under sec_851 of the code the fund uses an accrual_method of accounting and has an annual_accounting_period ending date the fund intends to form a wholly owned subsidiary the subsidiary organized as a type x company under the laws of country the fund represents that under the laws of country a type x company provides limited_liability for all holders of its shares and that the subsidiary will file an election on form_8832 to be taxed as a corporation under sec_301_7701-3 of the procedure and administration regulations the fund represents that although the subsidiary will not be registered as an investment_company under the act the subsidiary will comply with the requirements of section f of the act investment_company act release no and related sec guidance pertaining to asset coverage with respect to transactions in commodity futures and other transactions in derivatives the fund intends to invest a portion of its assets in the subsidiary subject_to the limitations set forth in sec_851 of the code the subsidiary is expected to invest in commodities commodities futures contracts swaps on commodities futures and other commodities-related instruments but may also invest in other_securities equities debt or cash because the subsidiary will be wholly owned by the fund the fund represents that the subsidiary will be a controlled_foreign_corporation the subsidiary may generate subpart_f_income and the fund represents that it will include in its income subpart_f_income of the subsidiary under the provisions of subpart_f of the code law and analysis sec_851 of the code provides that a corporation shall not be considered a ric for any taxable_year unless it meets an income test under this test at least percent of its gross_income must be derived from certain enumerated sources under sec_851 a corporation’s qualifying_income includes - dividends interest payments_with_respect_to_securities_loans as defined in sec_512 and gains from the sale_or_other_disposition of stock_or_securities as defined in sec_2 of the act or foreign_currencies or other income including but not limited to gains from options futures or forward contracts derived with respect to its business of investing in such stock securities or currencies sec_2 of the act defines the term security as - plr-120207-10 any note stock treasury_stock security future bond debenture evidence_of_indebtedness certificate of interest or participation in any profit-sharing agreement collateral-trust certificate preorganization certificate or subscription transferable share investment contract voting-trust certificate certificate of deposit for a security fractional undivided_interest in oil gas or other mineral rights any put call straddle option or privilege on any security including a certificate of deposit or on any group or index of securities including any interest therein or based on the value thereof or any put call straddle option or privilege entered into on a national securities exchange relating to foreign_currency or in general any interest or instrument commonly known as a security or any certificate of interest or participation in temporary or interim certificate for receipt for guarantee of or warrant or right to subscribe to or purchase any of the foregoing in addition the flush language of sec_851 of the code provides that for purposes of sec_851 there shall be treated as dividends amounts included in gross_income under sec_951 or sec_1293 for the taxable_year to the extent that under sec_959 or sec_1293 as the case may be there are distributions out of the earnings_and_profits of the taxable_year which are attributable to the amounts so included sec_957 of the code defines a controlled_foreign_corporation cfc as any foreign_corporation in which more than percent of the total combined voting power of all classes of stock entitled to vote or the total value of the stock is owned by united_states_shareholders on any day during the corporation’s taxable_year a united_states_shareholder is defined in sec_951 as a united_states_person who owns percent or more of the total combined voting power of all classes of voting_stock of a foreign_corporation the fund represents that it will own percent of the voting power of the stock of the subsidiary that the fund is a united_states_person and that the subsidiary therefore will qualify as a cfc under these provisions sec_951 of the code provides that if a foreign_corporation is a cfc for an uninterrupted period of days or more during any taxable_year every person who is a united_states_shareholder of the corporation and who owns stock in the corporation on the last day of the taxable_year in which the corporation is a cfc shall include in gross_income the shareholder’s pro_rata share of the cfc’s subpart_f_income for the taxable_year sec_952 of the code defines subpart_f_income to include foreign_base_company_income determined under sec_954 under sec_954 foreign_base_company_income includes foreign_personal_holding_company_income determined under sec_954 sec_954 defines foreign_personal_holding_company_income to include among other things dividends interest royalties rents and annuities gains in excess of losses from transactions in commodities including futures forward and similar transactions but excluding certain hedging_transactions and certain active business plr-120207-10 gains and losses and subject_to certain exceptions net_income from notional_principal_contracts the subsidiary’s income from its investments in commodities and commodity- linked instruments is expected to generate subpart_f_income the fund will therefore be required to include in its income its pro_rata share of the subsidiary’s subpart_f_income for each taxable_year in accordance with sec_951 conclusion based on the facts as represented we rule that subpart_f_income of the subsidiary attributable to the fund is income derived with respect to the fund’s business of investing in the stock of the subsidiary and thus constitutes qualifying_income under sec_851 of the code except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter in particular no opinion is expressed with regard to whether the fund qualifies as a ric under subchapter_m of the code this ruling is directed only to the taxpayer who requested it and is limited to the facts as represented by the taxpayer sec_6110 of the code provides that this letter may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely susan thompson baker susan thompson baker senior technician reviewer branch office of associate chief_counsel financial institutions products