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What Is a Private Letter Ruling (PLR) and How Much Does One Cost?


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Tax law is tough. Even seasoned tax professionals can have questions about certain transactions or tax planning strategies. 

For example, say you and your tax advisor aren’t sure whether your restructuring plan will count as a tax-free spin-off. Millions of dollars are at stake, and the last thing you want to do is get on the wrong side of the IRS.

Rather than interpret tax law as best you can and hope the IRS agrees, you can request what’s called a private letter ruling.

What Is a Private Letter Ruling?

A private letter ruling is a written statement from the Internal Revenue Service to a taxpayer that interprets tax law and applies it to the taxpayer’s unique situation.

The IRS issues several different types of guidance, including:

  • Regulations
  • Revenue rulings
  • Revenue procedures
  • Technical advice memorandum
  • Notices
  • Announcements

Private letter rulings are different from other forms of IRS guidance. The rulings are public, but only the taxpayer who requested the guidance can act on them. Other taxpayers and IRS employees can’t rely on a private letter ruling as precedent for applying tax law to their own situation.

Once the IRS issues a private letter ruling, the agency is bound by its determination as long as the specific set of facts presented by the taxpayer are correct.

The IRS Office of Chief Counsel issues most private letter rulings. However, the Tax Exempt/Government Entities Division can also issue them when the question pertains to a nonprofit organization or government entity.


What Issues Can the IRS Rule On?

You can request a private letter ruling on most tax issues, including:

  • Income and gift tax issues
  • Estate tax matters
  • Generation-skipping transfer tax matters
  • Employment and excise tax issues

The IRS also publishes an annual list of no-rule areas, which are subjects it won’t issue a private letter ruling on, either because it believes existing tax law already answers the question clearly or it simply doesn’t want to. The IRS includes that list in the first revenue procedure for the year.

Currently, that list includes 59 different tax issues, including certain questions about the low-income housing credit, the definition of gross income, group term life insurance, and gifts and inheritances. You can check out the complete list in Internal Revenue Bulletin No. 2021-1, Revenue Procedure 2021-3 for domestic no-rule areas and Revenue Procedure 2021-7 for international no-rule areas. 

Also, the IRS doesn’t issue “comfort” rulings. Comfort rulings involve matters the IRS deems it’s already addressed by statute, regulation, court decision, revenue ruling, revenue procedure, or notice.


How to Apply for a Private Letter Ruling

The IRS publishes the procedures and fees for making a private letter ruling request in the first revenue procedure of each calendar year. 

You can check out Revenue Procedure 2021-1 of the same bulletin that includes no-rule questions for detailed information, but in general, your request must include:

  • The names, addresses, telephone numbers, and taxpayer identification numbers of all interested parties
  • The accounting period and the accounting method (cash or accrual) used on the taxpayer’s federal income tax return
  • A description of the taxpayer’s business operations
  • The business reasons for the proposed transaction and a detailed description of the transaction
  • Any other material facts relating to the prospective transaction or its tax treatment
  • Copies of all contracts, deeds, agreements, and other documents related to the transaction

The requesting taxpayer or an authorized representative must sign the private letter ruling request. You can find a sample format for a ruling request in Revenue Procedure 2021-1.

Appendix C of Revenue Procedure 2021-1 also includes a checklist for ensuring your letter ruling request is complete. The IRS requires you to fill out the checklist, sign and date it, and include it on top of your request.


How Much Does a Private Letter Ruling Cost?

Getting a private letter ruling isn’t cheap. As of Feb. 3, 2021, depending on the type of private letter ruling you want, the fee ranges from $275 to $38,000.

Individual taxpayers, nonprofit organizations, governmental entities, and businesses with gross income under $1 million qualify for reduced fees, which max out at $8,500. You can find a complete schedule of fees in Revenue Procedure 2021-1.

You must pay the fee when you submit your ruling request, and there’s no guarantee the IRS will issue a favorable ruling. If they choose not to rule on your request, you can request a refund of the user fee, although it’s up to the IRS to decide whether or not to issue the refund.

According to a Treasury Inspector General for Tax Administration report, it’s the IRS’s policy not to issue refunds when:

  • The taxpayer withdraws their request after the IRS receives it
  • The private letter ruling request is missing critical information, and the taxpayer doesn’t supply the necessary information within a reasonable time frame
  • The IRS rules on some but not all of the issues included in the request

And IRS user fees aren’t the only costs involved. 

Drafting a private letter ruling request, submitting all the additional information required, and handling any follow-up questions from the IRS involves a lot of time and skill. So you need to work with a tax attorney or another specialist who will undoubtedly charge professional fees as well.


How Long Does a Private Letter Ruling Take?

Once you submit a written request, getting a private letter ruling from the IRS can take months. 

The IRS sends a letter acknowledging your submission. Staying in contact with the IRS representative listed in that acknowledgment ensures your request doesn’t fall through the cracks.

Ideally, you’d be able to delay the transaction or filing your tax return until you receive the private letter ruling, but that’s not always possible. If you have to file a tax return for the year that’s the focus of the ruling request or if the facts of the transaction change or the IRS selects your tax return for an audit, report those developments to the IRS representative handling your private letter ruling. 


Is Getting a Private Letter Ruling Worth It?

Getting a private letter ruling can be a time-consuming, complicated, and expensive process. So they’re inappropriate for everyday questions like whether you can claim the child tax credit or which business expenses are tax-deductible.

If you take a look at the list of recent private letter rulings issued by the IRS, it includes things that don’t impact the average person, such as:

  • Companies requesting permission to change their entity structure after the IRS deadline
  • Whether certain activities will cause a nonprofit organization to lose its tax-exempt status
  • The tax consequences of a proposed business transactions

Before seeking a private letter ruling, discuss your tax question or transaction with a qualified tax attorney or certified public accountant. They can help you compare the costs involved with the likelihood of a favorable ruling and the amount of potential tax savings at stake.


Final Word

The average taxpayer will never need a private letter ruling. Almost any question you have is answered somewhere online, and if you get stumped, an accountant or tax attorney is still probably a cheaper resource than a private letter ruling.

If you have questions about your taxes or the tax implications of a planned transaction, check out our guide to filing your tax return or browse the IRS information on tax credits and deductions for individuals

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Janet Berry-Johnson is a Certified Public Accountant. Before leaving the accounting world to focus on freelance writing, she specialized in income tax consulting and compliance for individuals and small businesses. She lives in Omaha, Nebraska with her husband and son and their rescue dog, Dexter.

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