Private Letter Ruling Requests

Private Letter Ruling

A private letter ruling is a written determination by the IRS to a taxpayer regarding the tax status of certain acts or transactions that have not yet been included on a tax return. The ruling interprets the tax code as it applies to the requester‘s unique set of facts and circumstances and provides a definitive determination.

When the IRS issues a private letter ruling it is binding on the IRS for that taxpayer, but no other taxpayers can hold the IRS to that ruling. The taxpayer must include a copy of the ruling with their return in order to inform the IRS reviewer that they were entitled to take the position that they did. Even though other taxpayer cannot hold the IRS to someone else‘s private letter ruling, the administration of tax laws requires that the IRS treat similarly situated taxpayer‘s identically and therefore a taxpayer can argue that treating one in a certain way, while another differently, would violate this fundamental principle of taxation.

Strict Adherence to Formalities

A private letter ruling request must be made in strict conformity with the law. Any deviation from the required format could result in the private letter ruling being rejected by the IRS. The user fee for a private letter ruling can be quite substantial. For example, a person or business filing for 9100 relief (late elections) with gross income between $250,000 and $1,000,000 must pay a user fee to the IRS of $2,000. Since any non-conformity of the law could cost the taxpayer their user fee, it is highly recommended that competent tax counsel is retained.

Statement of Supporting Authorities

A taxpayer wants the IRS to rule in their favor, so a statement of supporting authorities should be included in the request. In this statement the taxpayer should provide relevant statutes, cases, regulations, procedures, previous rulings, notices, and other relevant legal authority. This statement provides the IRS with the taxpayer‘s analysis that demonstrates the legitimacy of the position they want taken.

A taxpayer is entitled to request a conference regarding a ruling request. Normally, the IRS will only schedule a conference when they believe it would be helpful in deciding a case or when an adverse decision is indicated. This conference must be held within 21 days after the IRS responds to the taxpayer of possible conference times.

Reasons why the IRS may not issue a Private Letter Ruling

The IRS will not always issue private letter rulings as there are certain issues that are specifically exempt from receiving one. Furthermore, the IRS may decline to issue a private letter ruling when appropriate in the interest of sound tax administration. Lastly, the IRS will normally decline to issue a private letter ruling if an identical issue is being audited from an earlier tax period.