Private Letter Rulings from the IRS

An IRS private letter ruling (“PLR”) is a ruling by the IRS on a specific tax issue for a specific taxpayer.  A request for a PLR is usually made before a taxpayer takes a certain action.  The main exception to this is when a taxpayer is requesting a late election.  Most taxpayers will never need such an IRS private letter ruling, but if there is a large dollar amount of tax liability involved and a tax issue that is unclear, you should consider requesting a PLR to reduce your risk.  In addition, if a taxpayer has failed to make a timely tax election, a PLR may be their only recourse.

The procedures for requesting a PLR are detailed in the first revenue procedure published by the IRS each year, currently Revenue Procedure 2009-1.  However, it is recommended that one use the expertise of a tax professional with experience requesting a PLR.  If the IRS grants the request, the taxpayer may rely on the PLR if the issue ruled on comes up during an audit.  The IRS can also rule adverse to the taxpayer’s position.  If this is the case, the taxpayer has two options: either accept the adverse ruling or withdraw the ruling request.  In either case the IRS will forward the file to the local IRS office.

Therefore, you should not request a PLR if you plan to complete the transaction regardless of the IRS tax decision. In such a case, requesting the IRS private letter ruling would be senseless. In that case, you would either complete the transaction and hope that your tax return is not audited by the IRS or complete the transaction, disclose all the details to the IRS on the tax return, and hope that the IRS agrees.  An IRS private letter ruling would only be applicable where you intend to abide by the IRS tax decision and do not wish to take the chance of a tax audit.