So you are referring to PLR 200119014 published more than 20 years ago, which revoked PLR 200004022 published less than two years earlier. The reason given by IRS? “Because it is not in accord with the current views of the Service.”
Since these PLR’s apply only to the one taxpayer who asked, and they just reflect the IRS position and not any clear guidance from statutes, regulations or courts, I would advise clients that it’s a gray area and if they want to pay a lot of tax just to avoid resolving it, you will follow their instructions. First, though, I would research the dozen or so amendments to Section 121 since the revocation was issued. There may be some court cases that are relevant, also. IRS might have changed its mind again, maybe several times, or the law might have changed it for them.