Understanding Private Letter Rulings (PLR)
A private letter ruling (PLR) is a formal decision issued by the Internal Revenue Service (IRS) in response to a taxpayer’s request for clarity on complex tax matters specific to their situation. When tax laws are unclear, especially in significant financial transactions, a PLR serves to eliminate uncertainty and provide guidance to taxpayers, typically businesses, regarding their expected tax treatment from the IRS based on the circumstances outlined in the ruling. Moreover, a private letter ruling can help confirm if a proposed action complies with tax regulations.
A private letter ruling is also known as a letter ruling (LTR) and is issued by various divisions within the IRS, including the Office of Chief Counsel, Large Business and International Division, Small Business/Self Employed Division, Wage and Investment Division, as well as the Tax Exempt and Government Entities Division.
Key Takeaways
- A private letter ruling (PLR) provides clarity on complex tax matters based on a taxpayer’s specific circumstances.
- It offers guidance to taxpayers, particularly businesses, on the anticipated tax treatment from the IRS.
- Consulting the yearly Revenue Procedure from the IRS, which includes request guidelines and templates, is crucial for taxpayers seeking a private letter ruling.
The Functioning of a Private Letter Ruling (PLR)
A private letter ruling is tailored to an individual taxpayer and their specific tax situation at the time of request. It is not precedent-setting and cannot be utilized as such by others. However, the IRS may issue a redacted version of a PLR as a revenue ruling, which is binding on all taxpayers. Despite a favorable ruling, there is no absolute assurance of tax consequences, as the IRS can review and amend a ruling if found incorrect or inconsistent with its current stance.
Private letter rulings become public after removing identifying details and are accessible through the IRS FOIA Library.
Initiating a Private Letter Ruling Request
To request a private letter ruling, taxpayers should refer to the IRS’s annual Revenue Procedure for request guidelines, templates, and a comprehensive questionnaire. Seeking assistance from an IRS representative or tax professional is advisable due to the strict filing requirements. The process demands exact compliance for a successful submission.
Requesting a private letter ruling incurs costs ranging from $150 to $50,000, depending on the complexity of the request. Additional professional fees may apply. The IRS typically processes rulings within 60-90 days, but the duration can extend if multiple IRS branches are involved or under special circumstances.