Personal Finance

Private Letter Ruling (PLR)

What is a Private Letter Ruling (PLR)?

A Private Letter Ruling (PLR) is a written decision from the Internal Revenue Service (IRS) sent in response to a taxpayer’s request for guidance regarding unusual circumstances or complex issues related to their particular tax situation. For certain transactions involving large sums of money, tax laws may not be clear. The purpose of the private letter ruling is to remove any uncertainty and to advise taxpayers (usually businesses) on the tax treatment they could receive from the IRS under the circumstances specified in the ruling. Private message rulings can also help taxpayers determine whether potential actions could lead to tax violations.

A private letter ruling is also sometimes called a letter ruling (LTR). The Office of the IRS General Counsel issued a private letter ruling; Large Business and International Division; Small Business/Self Employed Division, Payroll and Investments Division; and Tax Exemption and Government Entities Division.

key takeaways

  • A Private Letter Ruling (PLR) is a written decision from the Internal Revenue Service (IRS) sent in response to a taxpayer’s request for guidance regarding unusual circumstances or complex issues related to their particular tax situation.
  • The purpose of the private letter ruling is to remove any uncertainty and to advise taxpayers (usually businesses) on the tax treatment they can receive from the IRS.
  • Taxpayers requesting a private letter ruling should review the income procedures issued by the IRS at the beginning of each calendar, which describe guidance and updates to the process and include a sample request letter template.

How the Private Letter Ruling (PLR) works

Private message rulings are specific and apply only to individual taxpayers and their tax situation at the time of request. Private letter rulings on behalf of other taxpayers cannot be used as a precedent for those requesting a ruling on their own issues, and in no way binds the IRS to take a similar position in dealing with other taxpayers.

However, the IRS can edit the personal content of a private letter ruling and publish it as an income ruling, which is binding on all taxpayers. Even with a favorable ruling, taxpayers cannot be absolutely guaranteed tax consequences because the IRS can amend or revoke a previously issued DM ruling if it is later determined that the ruling is incorrect or inconsistent with the IRS’ current position.

Private letter rulings are usually made public after all identifiable information about the taxpayer has been removed and can be obtained through IRS FOIA Library.

How to Request a Private Letter Ruling

Taxpayers requesting a private letter adjudication should review the income procedure issued by the IRS at the beginning of each calendar year, which describes guidance and updates to the process and includes a sample request letter template and a checklist of more than 50 questions that must be answered. Taxpayers who plan to require private letter rulings should also consider consulting an IRS employee or other tax professional for help with the process. The filing procedure is highly technical and successful filing requires full compliance.

One of the burdens of requesting a private letter ruling is cost, which has risen steadily in recent years. Taxpayer-incurred fees can range from $150 for a simple request to $50,000 for a pre-filing agreement. For certain transactions, the cost of an award can be as high as $30,000, in addition to professional fees that the taxpayer may incur. The IRS typically completes a decision request within 60-90 days, but the process may take longer if multiple branches of the IRS need to review the decision or there are other extenuating circumstances.

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