APPLYING FOR A PRIVATE LETTER RULING
by Jay Starkman, CPA
When a transaction requires greater certainty or when relief is sought for a difficult tax situation, applying to the IRS for a private letter ruling (PLR) can provide interpretation and application of law and regulation with respect to that taxpayer the Service will follow, within certain conditions and limitations. Here's how to apply for a PLR:
Confirm there is a need. The IRS ordinarily will not issue comfort letter rulings on matters that are already squarely addressed by statute, regulation, court decision, revenue ruling, revenue procedure or notice.
Get the most recent IRS guidance for making a ruling request. Follow the IRS requirements and instructions for applying for a ruling. This information generally is contained in the first revenue procedure the IRS publishes each year; for 2017 it's Rev. Proc. 2017-1. A sample letter ruling request is included in the appendix. Check for updates and revisions published during the year.
Is there an easier way to obtain a ruling? See if your ruling request falls under an automatic or simplified method. Many of these are listed in the appendix of Rev. Proc. 2017-1 and Rev. Proc. 2011-14 (and its modifications/successors, most recently, Rev. Proc. 2017-30). Sometimes such relief is adequate and there's no user fee. For example, an LLC received assets from a corporation. The transaction was intended to qualify as a tax-free reorganization but failed because that treatment is not permitted in an asset distribution to a partnership. The initial LLC partnership return has already been filed. Relief may be available under Rev. Proc. 2013-30 requesting permission for a late S corporation or corporation classification election, retroactively making the transaction a distribution between two corporations.
Confirm that the IRS has not declared your subject a no ruling topic. Review the no ruling lists that the IRS issues at the beginning of each year and any subsequent updates. For 2017, they are revenue procedures 2017-3 for U.S. domestic matters and 2017-7 for international issues.
Seek direct guidance from the IRS. Before applying for a ruling, in addition to doing research to convince the IRS to rule favorably, you should call an IRS employee who deals in your subject matter to discuss your proposed ruling request. In these days of IRS budget, staffing and hiring freeze problems, you must call because the agency has become more selective about what issues it will address. Most published rulings include a name and phone number of the person involved with the ruling who can direct you to someone with whom to informally discuss your proposed request. Rev. Proc. 2017-1, Sec. 10.07(1) includes a list of phone numbers to request a presubmission conference in person or by telephone, but this requires disclosure of the taxpayer's identity.
Don't forget to pay the user fee. The fee list the IRS publishes near the beginning of each year is calculated in accordance with OMB Circular No. A-25. Rev. Proc. 2017-1 (see section 15 and appendix A) lists most fees in the range of $2,400 to $28,300 (up nearly 400 percent since 2011; IRS raised user fees to pay for implementing Obamacare which Congress wouldn't fund). Automatic and simplified methods are generally not subject to a user fee. Payment for ruling applications after August 15, 2017 must be made electronically at pay.gov.
Maintain contact with the IRS while your ruling is pending. Obtaining a complex PLR generally takes months. Keeping in touch with the person listed in the IRS acknowledgment of receipt of your ruling application can speed up the process.
Jay Starkman is a sole practitioner in Atlanta. He is the author of the book The Sex of a Hippopotamus: A Unique History of Taxes and Accounting. A version of this article was originally published in The Journal of Accountancy, January 2010. ©2010 American Institute of Certified Public Accountants.