Why I Ignore IRS Private Letter Rulings

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There have been times in my career when I have had to ask for a private letter ruling (PLR). The reason you ask for a PLR from the IRS is because you need guidance.

A PLR is defined as: a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s represented set of facts. A private letter ruling is requested when the taxpayer wishes to confirm with the IRS that a prospective transaction will not likely result in a tax violation. This ruling interprets the tax laws and applies them to the taxpayer’s specific set of facts and gives that taxpayer something he may rely upon.

So you may have to write one of these, and if you do, they cost a fortune. Revenue Procedure 2017-1 provides the fees that the IRS charges for these letters:

  • Taxpayers with gross income of under $250,000 have to pay $2,400.
  • Taxpayers with gross income greater than $250,000 and less than $1 million pay $7,600.
  • Taxpayers with gross income of $1 million or more pay $10,000.

That doesn’t include your fee to write the letter. 

Basically, a PLR addresses your client’s particular situation and it cannot be used as precedent. For example, let’s say that your client has a situation that is similar to a PLR that you read about and it gets examined. You can’t then go back and use the document as precedent like you could with a court case.

PLRs are public information, and I find them in my research emails every morning. But I never read them because unless I was the one writing the letter for my client’s specific scenario, the ruling in the letter means nothing.

You can study these letters and try to decipher them, but honestly, you are wasting your time because, again, they mean nothing.

I guess that is kind of radical thinking. I hear tax professionals refer to PLRs all the time about this case or that case, and I always zone out as they are talking because what they are saying has no relevance to me.

The only value that I can see from immersing yourself in PLRs would be to find out what the IRS may be thinking about in a certain scenario, but that would be it.

My wife, who is also my business partner, likes to tell this story, but this time I will tell it. I am an early riser. I don’t believe in alarm clocks because I like to wake up naturally. On a typical night, I will fall asleep at 11 p.m. and be awake by 3:30 or 4 a.m. This only backfires on me once in a while, when I will sleep until 7:30 a.m. or so. If my wife wakes before me, she knows to let me sleep.

Around 4:30 a.m., I start getting emails. I get them from my research software, and I subscribe to just about every tax newsletter out there. I usually spend about two hours in the morning reading articles and deciphering US Tax Court cases. When I see something interesting, I will do research and write an article. I read pretty much anything – except PLRs.

There is no point in my mind to read something that I can never use in practice. I will read Tax Court cases that don’t apply to me or my clients because you never know. My wife makes fun of me, but even during my downtime, you can find me perusing the Journal of Accountancy or any tax magazine that I can get my hands on. 

The point is, there is so much information out there that you can use, so unless you just love PLRs, they are a complete waste of your time.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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May 31st 2017 16:56

On the good news front about PLRs, most taxpayers who used to have to request a ruling for missing the 60 day rollover deadline to roll their retirement into an IRA or other retirement plan, can now instead avail themselves of a self-certification procedure from the IRS. In August 2016, the IRS announced the new program in News Release IR-2016-113: https://www.irs.gov/pub/irs-news/ir-16-113.pdf and provided technical guidance in a Revenue Procedure: https://www.irs.gov/pub/irs-drop/rp-16-47.pdf. The new program allows those who qualify to fix the rollover problem while avoiding a costly PLR.

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