A Private Letter Ruling (PLR) is a written decision by the Internal Revenue Service (IRS) that is sent in response to a taxpayer’s request for guidance on unusual circumstances or complex questions about their specific tax situation. For certain transactions involving large amounts of money, the tax law may be unclear. The purpose of the private letter ruling is to remove any uncertainty and to advise the taxpayer, usually a business, regarding the tax treatment they can expect from the IRS given the circumstances specified by their ruling. A PLR may also help a taxpayer confirm whether or not a potential action will result in a tax violation.
How a PLR Works
A PLR is specific and applicable only to the individual taxpayer and their tax situation at the time of the request. PLRs on behalf of other taxpayers cannot be used as precedent by a person requesting a ruling regarding their own issue, and in no way binds the IRS to take a similar position when dealing with other taxpayers.
However, the IRS may redact the personal content of a PLR and issue it as a Revenue Ruling, which becomes binding on all taxpayers. Even with a favorable ruling, a taxpayer has no absolute guarantee of the tax consequences, since the IRS can modify or revoke a previously issued PLR if it is later determined that the ruling was incorrect or inconsistent with the current position of the IRS.
Private letter rulings are generally made public 90 days after they are provided to the taxpayer, with all identifiable information on the taxpayer redacted.
How to Request a PLR
Taxpayers requesting a PLR should consult the Revenue Procedure published by the IRS at the start of each calendar year, which describes guidelines and updates for the process and includes sample request letter templates and a checklist of over 50 questions that must be answered. Taxpayers planning to request a PLR should consult with an IRS employee or another tax expert for help with the process. The filing procedure is extremely technical and exact compliance is required for a successful filing.
The IRS generally will not issue “comfort letters” on matters that have already been decided by tax law, regulation, court decision, revenue ruling, revenue procedure, or notice.
On April 30, 2020, the IRS released an advanced version of Revenue Procedure 2020-29 which modifies the procedures outlined in Revenue Procedure 2020-1. This revised procedure temporarily allows for the submission of requests for PLRs by electronic means.
One of the burdens of requesting a PLR is the cost, which has steadily risen in recent years. Fees incurred by a taxpayer can range from $150 for simple requests to $50,000 for pre-filing agreements. For a specific transaction, costs of $30,000 are not unusual – this is in addition to the professional fees the taxpayer will incur. The IRS generally completes ruling requests within 60-90 days, although the process can take significantly longer if multiple branches of the IRS need to review the ruling or if there are other extenuating circumstances. Also, current requests may take longer due to limited IRS personnel as a result of the pandemic.
All PLR requests must include the following:
- A complete statement of facts and other information;
- An analysis of material facts;
- A statement indicating whether the issue affects any tax returns the owner already filed;
- A statement indicating whether a ruling on the same or a similar matter has been issued or requested, or is pending;
- A list of authorities that support the request;
- A list of authorities that appear to run contrary to the request;
- A statement identifying any pending legislation that would affect the request;
- A statement identifying information to be deleted from the copy of the PLR the IRS will make available to the public;
- The owner’s signature or the signature of its authorize representative;
- A list of authorized representatives;
- A power of attorney and declaration of representative from each authorized representative;
- A statement attesting to the accuracy of the request under penalties of perjury; and
- The number of copies of the request the owner is submitting.
Once the request is made to the IRS, a representative of the IRS will contact the taxpayer within 21 days after the IRS receipt of the request in order to discuss procedural issues.
One important note relating to the COVID-19 pandemic, according to Revenue Procedure 2020-29 (noted above), electronic submission will result in faster processing than paper submission.
After this initial contact with the IRS, taxpayers should maintain contact with the Service while the ruling is pending. This can further speed up the process.