You may someday find yourself in a unique tax situation and want to remove any uncertainty of the tax treatment of that situation. In that case, you can request a Private Letter Ruling (PLR) from the Internal Revenue Service.
A PLR is a written statement that interprets and applies tax law to your particular facts. As long as the taxpayer frames the question properly and provides accurate information, the ruling can be considered binding for that specific situation and taxpayer.
A private letter ruling request has no specific form; it is basically a letter explaining your particular facts. The following are required to be addressed in a PLR request:
- Statement of Facts, including
- The names, addresses, phone numbers, and taxpayer identification numbers of all interested parties;
- The annual accounting period and overall method of accounting;
- A description of the taxpayer’s business operation (if applicable);
- A complete statement of the reasons for the transaction; and
- A detailed description of the transaction.
- Copies of any contracts, deed, agreements, or other documents that are applicable.
- An analysis of the facts surrounding your transaction.
- If applicable, a statement regarding whether the same issue is on an earlier return.
- Your conclusion, with an explanation of what your grounds are for the conclusion and any authority you relied on to support it.
- Any authority contrary to your conclusion. If none exists, that should be mentioned.
- A statement identifying pending legislation, if any.
Requesting a PLR is not free – a “user fee” is required to be submitted when making the request. The user fees start at $275 but can be in the thousands of dollars in certain situations, and they must be submitted with the request. The first Revenue Procedure issued each year outlines the rules surrounding PLR submissions and the fees.
Because of the cost involved and the complexity, assess whether the IRS is likely to rule in your favor before going this route. Consider working with an experienced tax professional or tax attorney first to determine if this is the best option for you!