Private letter rulings are in the nature of “advisory” rulings by the IRS concerning the tax implication of income or estate transactions contemplated by taxpayers. As stated in Rev. Proc. 2015-1, the IRS generally issues a letter ruling on a proposed transaction or on a completed transaction if the letter ruling request is submitted before the return is filed for the year in which the transaction is completed. The IRS will not issue a ruling with respect to an issue that cannot be resolved before the promulgation of a regulation or other published guidance, but may issue rulings where (i) the answer is clear or reasonably certain in light of “statute[s], regulations, and applicable case law; or (ii) where the answer does not seem “reasonably certain” but would be in the “best interest of tax administration.” The IRS will not ordinarily issue letter rulings in certain areas because of the “factual nature of the matter involved.” However, in some cases the Service may, in the interest of sound tax administration, issue an “information letter calling attention to well-established principles of tax law.”
The IRS will not ordinarily issue ruling letters to business organizations concerning the application of tax laws to members of the business, or to a taxpayer requesting a letter ruling regarding the tax consequences to a customer or client. The IRS will not issue a letter ruling regarding frivolous issues, the most obvious being frivolous “constitutional” claims. Nor will the IRS issue a “comfort” ruling with respect to an issue which is “clearly and adequately addressed by statute, regulations, decision of a court, revenue rulings, revenue procedures, or other authority. . .” The IRS will also not issue letter rulings concerning “alternative plans of proposed transactions or on hypothetical situations.” Ruling letters will not be issued for matters currently before Appeals or pending in litigation. A ruling request that may not be acted upon by reason of the return being in examination may, at the discretion of the IRS, be forwarded to the field office that has examination jurisdiction over the taxpayer’s return.
A request for a letter ruling must provide a “complete statement of facts and other information,” including the names, addresses, telephone numbers and taxpayer identification numbers of all interested parties. The request must provide (i) a description of the taxpayer’s business; (ii) a complete statement of the business reasons for the transaction; (iii) a detailed description of the transaction; and (iv) all other facts relating to the transaction. The ruling request must also be accompanied by an analysis of the facts and their bearing on the issue or issues. In practice, the “analysis” must be a comprehensive tax analysis, in effect citing persuasive authority for the requested ruling. In providing the required analysis, the taxpayer must provide a statement of both supporting and contrary authorities. That is, a particular conclusion espoused by the taxpayer must include an explanation of the grounds for that conclusion. So too, contrary authorities should be brought to the attention of the IRS “at the earliest possible opportunity.” If there are “significant contrary authorities,” they should be discussed in a ““pre-submission conference” prior to submitting the ruling request. The rationale for the IRS request that the taxpayer provide a discussion of contrary authorities is that such disclosure will “enable Service personnel more quickly to understand the issue and relevant authorities.”
The taxpayer may also request that personal identifying information be deleted from public inspection, as private letter rulings are published by the IRS. The ruling request must be signed by the taxpayer or by the taxpayer’s representative. Even if signed by the representative rather than by the taxpayer, the taxpayer must sign a statement under penalty of perjury attesting to the truth of the matters contained in the ruling request. Each ruling request must also be accompanied by a “checklist” so lengthy that its inspiration appears to emanate from the Magna Carta, and may well dissuade more than a few taxpayers from submitting the ruling request. The checklist appears as Appendix C to Rev. Proc. 2015-1. Ruling requests are processed “in the order of date received,” but “expedited handling” will be accorded in “rare and unusual cases.” A request for expedited handling must “explain in detail”” the need therefor. A request for expedited handling is discretionary. The IRS may grant the request where a factor “outside a taxpayer’s control” requires a ruling in order to avoid “serious business consequences.” An example provided in Rev. Proc. 2015-1 is where a court or governmental agency has imposed a deadline. However, even in that case, the taxpayer must show that the request was submitted as promptly as possible after becoming aware of the deadline. The scheduling of a closing date or a meeting of the board of directors or shareholders of a corporation will not be considered a sufficient reason to request expedited handling. If a private delivery service such as Fedex is used, the package should be marked “RULING REQUEST SUBMISSION,” and should be sent to
Internal Revenue Service
Attn: CC:PA:LPD:DRU, Room 5336
1111 Constitution Ave., NW
Washington, DC 20224
Within 21 calendar days after receiving a ruling request, the IRS will recommend that the IRS rule as the taxpayer requested, rule adversely, or not rule. The IRS may also request additional information, which the taxpayer must submit within 21 days. A taxpayer is entitled to one “conference of right,” which may either be by telephone or at the IRS in Washington. The IRS must notify the taxpayer of the time and place of the conference, which must then be held within 21 calendar days after this contact. It is preferable to avail oneself of the conference in Washington, where the taxpayer’s representative will be able to more fully discuss the position of the taxpayer and perhaps elicit information that could increase the probability of a obtaining favorable ruling. A senior IRS attorney will be present at a conference of right, along with several associates. At the conference, the IRS will explain its position, and the taxpayer will have an opportunity to advance its position. No tape, stenographic, or other recording of the conference may be made by either party. Following the conference, the taxpayer will have the opportunity to submit additional information or refine its legal arguments before the IRS issues a ruling. If following the conference of right it appears unlikely that the taxpayer will be obtain a favorable ruling, the ruling request may be withdrawn at any time before the letter ruling is signed by the IRS. However, in that case the IRS notify by memorandum the examination division reviewing the taxpayer’s return. If the memorandum provides “more than the fact that the request was withdrawn . . . the memorandum may constitute Chief Counsel Advice, as defined in IRC §6110(i)(1), and may be subject to disclosure. User fees will not be refunded where a ruling request has been withdrawn.
III. Pre-Submission Conference
IRS attorneys are usually willing to informally discuss tax issues which could become the subject of a potential ruling request without the necessity of the representative disclosing the identity of the taxpayer. Direct phone numbers of IRS attorneys in their respective branches, as of January 2, 2015, can be found at
Rev. Proc. 2015-1 provides for a different, more formal vehicle for seeking advice prior to submitting an actual ruling request. This is termed a “Pre-submission Conference.” Such a conference may be requested by the taxpayer, but the decision to grant such conference is within the discretion of the Service. A pre-submission conference is held to discuss “substantive or procedural issues relating to a proposed transaction.”” The conference will be held only if the identity of the taxpayer is provided, and only if the taxpayer ““actually intends” to make a ruling request. A request for a pre-submission conference may be made either in writing or by telephone. The request should identify the taxpayer and briefly explain the tax issue so that it can be assigned to the appropriate branch.
IV. Effect of Letter Ruling
In theory, only a taxpayer receiving a positive letter ruling may rely thereon. A similarly situated taxpayer in a nearly identical factual situation could also reasonably rely on the ruling. In practice, tax professionals tend to rely on the substance of a letter ruling where the IRS appears to be making a statement of its position which could be applicable to other situations. For example, the IRS has on numerous occasions indicated in rulings that relief from erroneously made QTIP elections is available. It might therefore be reasonable to infer that the IRS might grant relief from an erroneously made QTIP election in a similar factual situation. However, as indicated in Rev. Proc. 2015-1, the IRS does not spend an inordinate amount of time and resources responding to a particular ruling request, and it would be unreasonable to expect the IRS to be held to a particular ruling in circumstances not substantially similar or identical to that with respect to which it has ruled favorably for another taxpayer. The IRS may also revoke, modify, or amend a previously issued ruling. Ordinarily, where a taxpayer has been forthright in furnishing information, and a change in the law requires the IRS to revoke a ruling, the ruling will not be revoked retroactively. However, if the taxpayer has not provided correct facts, the Service may revoke the ruling retroactively. The IRS explicitly states in Rev. Proc. 2015-1 that the ruling assumes the taxpayer provided “an accurate assessment of the controlling facts,” and that “the transaction was carried out substantially as proposed.”
V. User Fees
User fees apply to all requests for letter rulings. However, user fees do not apply to elections made pursuant to §301.9100-2, relating to automatic extensions of time, to late initial classification elections made pursuant to Rev. Proc. 2009-41, or to late S corporation elections. If a request concerning one transaction involves more than one fee category, only one fee applies, but that fee is the highest that would apply to any of the categories. Similarly, even though a request may involve several issues, only one fee will apply. Nonetheless, each entity involved in a transaction that requires a separate ruling in its name must pay a separate fee regardless of whether the transaction or transactions are related. As noted, user fees will generally not be refunded. However, if the only reason for withdrawal is by reason of a misapprehension by the taxpayer of the amount of the user fee, and the taxpayer is unwilling to pay the higher fee, the user fee will be refunded. User fees will not be refunded where the request is “procedurally deficient” and is not timely perfected. The IRS will however, refund a user fee where the taxpayer successfully asserts that the IRS has erred or been unresponsive to a ruling request. Appendix A contains a “Schedule of User Fees.” A ruling request for relief under § 301.9100-3 is $6,900. All other ruling requests cost $19,000. However, a reduced user fee of $2,000 applies to a person whose gross income is less than $250,000; and a reduced user fee of $5,000 applies to a person whose gross income is more than $250,000 but less than $1 million. Substantially identical letter ruling requests will also qualify for user fee reductions.