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 2009 it was Revenue Procedure 2009-1. 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 an appendix of the revenue procedure. Sometimes such relief is adequate. 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 Revenue Procedure 2007-62 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 2009, they were revenue procedures 2009-3 for U.S. domestic matters and 2009-7 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. 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. Revenue Procedure 2009-1 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. Revenue Procedure 2009-1 (see section 15 and appendix A) lists most fees in the range of $625 to $11,500. Automatic and simplified methods are generally not subject to a user fee.
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.
—By Jay Starkman, CPA, (firstname.lastname@example.org) of Jay Starkman PC in Atlanta. He is the author of the book The Sex of a Hippopotamus: A Unique History of Taxes and Accounting.