23 Sep How to Request an IRS Private Letter Ruling
How to Request an IRS Private Letter Ruling. The first revenue procedure published each year provides the necessary guidance to request a letter ruling.
The current guidance is in IRS Rev. Proc. 2011-1.
A private letter ruling (PLR) is a written response by Chief Counsel to a taxpayer that interprets and applies the tax law to the taxpayer’s specific set of facts. Taxpayers tend to request a PLR for a wide variety of reasons. The one’s I’m familiar with involved requested relief for: a late election to sub chapter S status, a change of accounting method, and quite honestly inadvertent systematic failure. A PLR is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as prescribed.
The PLR request can be made before or after a transaction is completed. However, the IRS will not issue a letter ruling on alternative plans of proposed transactions or on hypothetical situations.
For income tax matters, file the request for a PLR is before filing the return in which the transaction is to be reported. If the taxpayer filed a return in a prior year involving the same issue, a letter ruling request can still be made for the current year. However, if an issue is under audit or on appeal for
that prior year, the taxpayer cannot request a letter ruling through this process; instead, Rev. Proc. 2011-2 should be followed.
What is Included in a PLR Request?
There is no specific form to use to request a PLR; the request is made in a letter format. Appendix B of Rev. Proc. 2011-1 contains a sample format for a letter ruling request. Section 7 of Rev. Proc. 2011-1 goes into great detail as to what is included in a PLR request, and Appendix C includes a checklist identifying all that is needed.
Following are some tips to drafting a PLR request.
• Statement of Facts including: the name(s), address(es), phone number(s), and taxpayer identification number(s) of all interested parties; the annual accounting period and overall method of accounting; a description of the taxpayer’s business operation (if applicable); a complete statement of the business reasons for the transaction (i.e., if not for business but investment or another nature, explain); and a detailed description of the transaction.
• Attach true copies of all contracts, wills, deeds, agreements, instruments, other documents, and foreign laws that are applicable.
• Provide written analysis of material facts and their bearing on the issue(s).
• If applicable, the request should include a statement regarding whether the same issue is on an earlier return.
• Clearly state your conclusion, include an explanation of the grounds for that conclusion and the relevant authorities to support it.
• If there are contrary authorities included them as well. Omitting them will inevitably delay the ruling process. If there are enough contrary authorities, consider discussing them in a pre-submission conference prior to submitting the ruling request. If there are no contrary authorities, a statement to that affect should be included.
• If applicable, a statement identifying pending legislation.
What Happens Once the IRS Receives the Request?
A branch representative of the Associate office having jurisdiction over the issue will contact the taxpayer (or authorized representative) within 21 days after a letter ruling request has been received. The branch representative will discuss the substantive and procedural issues of the letter ruling request. When possible, the branch representative will tell you for each issue within the branch’s jurisdiction whether:
• The branch representative will recommend that the Associate office rule as the taxpayer requested, rule adversely on the matter, or not rule;
• The taxpayer should submit additional information to enable Private Letter Rulings Processes and procedures to requesting guidance the Associate office to rule on the matter;
• The letter ruling complies with all of the provisions of Rev. Proc. 2011-1 (or its predecessor), and if not, which requirements have not been met; or
• Because of the nature of the transaction or the issue presented, a tentative conclusion cannot be reached. If the case is complex or there are a number of issues involved, it may not be possible to discuss the substantive issues during the initial contact. If the branch representative determines that a meeting in the Associate office would be more helpful to develop and exchange information, a meeting will be offered. This meeting is in addition to any other rights to a conference the taxpayer has available (see Section 10, Rev. Proc. 2011-1, for more details about conferences).
If the letter ruling request involves matters within the jurisdiction of more than one branch or Associate office, a representative of the branch that received the original request will tell the taxpayer within 21 days what has been referred to another branch or Associate office for consideration, the date the referral was made, and that a representative from that branch or Associate office will contact the taxpayer within 21 days after receiving the referral.
If less than a fully favorable letter ruling is indicated, the branch representative will tell the taxpayer whether minor changes in the transaction or adherence to certain published positions would bring about a favorable ruling. However, the branch representative will not suggest precise changes that would materially alter the form of the proposed transaction.
If the Associate office is going to rule adversely, the taxpayer will be offered the opportunity to withdraw the letter ruling request to avoid an adverse ruling. If the taxpayer withdraws, the IRS may still notify the appropriate official in the operating division that has examination jurisdiction of the taxpayer’s tax return (an example of such notification is CCA 201036009, which has also been made available to the public). Any correspondence and exhibits related to the request that is withdrawn will not be returned to the taxpayer.
Fees
Appendix A, Rev. Proc. 2011-1, contains the fee schedule. The standard letter ruling fees for requests received after February 1, 2011, are as follows:
• $625 for requests involving a personal or business tax issue from a person with gross income of less than $250,000.
• $2,100 for requests involving a personal or business tax issue from a person with gross income of less than $1 million.
• $14,000 for requests involving a personal or business tax issue from a person with gross income of $1 million or more.
A person means an individual, trust, estate, or business entity.
A certification of gross income is needed for the reduced $2,100 or $625 rate.
Gross income is defined in Appendix A and has different meanings depending on whether it is a personal tax matter or a business tax matter; whether the person is a U.S. Citizen, resident alien, or nonresident alien; a domestic or foreign estate or trust; domestic partnership or corporation; etc.
In the case of a PLR request from a married individual, gross income includes both spouse’s income unless they are legally separated and do not fi le a joint return. If there are two or more applicants filing the request, the gross income of the applicants must be combined. If the taxpayer withdraws a ruling request, the user fee is not refunded. On the other hand, if the Associate office declines to issue a ruling on all issues in the request, the fee is refunded. If the Associate office issues a letter ruling on some
but not all of the issues, the user fee is not returned.
Requests for Extensions of Time
A common request that must be made through the PLR process is the request to obtain an extension of time for a regulatory election. However, you should be aware of other late election provisions available where a PLR request is not needed. For instance, electing S status has Rev. Proc. 2007-62, Rev. Proc. 2003-43, and Rev. Proc. 97-48 available wherein if the taxpayer fits into a late election relief, a PLR request is not needed. LLCs have late election relief in Rev. Proc. 2004-48, Rev. Proc. 2007-62, and Rev. Proc. 2009-41. Reg. §301.9100-2 provides automatic extensions for various other types of regulatory elections. Requests for an extension of time for regulatory elections that do not fall under specific relief use.
Under Reg. §301.9100-3, the taxpayer is requesting a PLR and there are procedures set forth within the regulation that accompany those procedures in Rev. Proc. 2011-1.
Requests for an extension under Reg. §301.9100-3 will be granted if the taxpayer provides, to the satisfaction of the IRS, evidence that the taxpayer acted reasonably and in good faith, and that the interests of the government will not be prejudiced if the taxpayer is granted relief. The regulation explains when the taxpayer is deemed to have acted reasonably and in good faith and the standards the IRS will use to determine when the interests of the government are prejudiced.
Note: For a 60-day rollover of retirement plan funds (including IRAs), there are automatic approval provisions in Rev. Proc. 2003-16 for those meeting certain criteria. Otherwise, the procedures for requesting an extension of the 60-day rollover are in Rev. Proc. 2010-4.
The user fees are based on the amount rolled over. There is a $500 fee for rollovers less than $50,000; a $1,500 fee for rollovers equal to or greater than $50,000 but less than $100,000; and a $3,000 fee for rollovers equal to or greater than $100,000 (Rev. Proc. 2010-8).
Request to Change Method of Accounting
There is a plethora of accounting method changes, many of which are automatic changes in method of accounting available to taxpayers who do not require an advance ruling or a user fee. Taxpayers whose accounting method changes do not fall under one of the automatic change request procedures must use the PLR process to obtain advanced consent for the change in method of accounting so desired. Consult Form 3115, Application for Change in Method of Accounting, and the instructions before proceeding.
Section 9 of Rev. Proc. 2011-1 has details pertaining to the additional information needed when submitting a PLR request with regard to changes in method of accounting.
Other Types of Rulings
I mainly looked at Rev. Proc. 2011-1 in this article. During the examination of the return, whether in an audit or other type of IRS examination, Rev. Proc. 2011-2 is used for technical advice requests on tax matters from a field office of the IRS.
Either the IRS or the taxpayer can request technical advice during an audit. The request comes from the field office, whether it is generated by the taxpayer or the IRS.
Rev. Proc. 2011-3 provides the domestic “no rule” areas in which the IRS will not rule.
Rev. Proc. 2011-4 provides the necessary guidance for employer plans and exempt organization ruling requests.
Rev. Proc. 2011-5 is used for technical advice requests from the IRS field offices for employer plans and exempt organizations.
Rev. Proc. 2011-6 is used for determination letters on qualified status of employer plans.
Rev. Proc. 2011-7 provides the international “no rule” areas in which the IRS will not rule.
Rev. Proc. 2011-8 has the user fees for employer plans and exempt organization ruling requests.
Rev. Proc. 2011-9 provides procedures for requesting determination letters or rulings on exempt status of organizations.
Effect of Letter Ruling
A PLR only applies to the taxpayer requesting it; therefore, a taxpayer may not rely on a letter ruling issued to another taxpayer (although they can give good insight and provide useful information to another taxpayer). A letter ruling may be revoked or modified if there was:
• An enactment of legislation or ratification of a tax treaty;
• A decision by the Supreme Court;
• An issuance of temporary or final regulations;
• An issuance of a revenue ruling, revenue procedure, notice or other statement published in the Internal Revenue Bulletin; or
• A change, misstatement, or omission of the controlling facts in the letter ruling.
When a letter ruling is revoked or modified for reasons other than a change in facts, it will generally not be applied retroactively. See Section 11 of Rev. Proc. 2011-1 for more details about revocation or modification of a letter ruling.
For more information about this please feel welcome to contact me at your convenience.