The IRS has a couple of different ways that guidance is provided, called Private Letter Rulings and Revenue Rulings. These rulings can be very important when determining if a particular position is valid in the interpretation of the IRS.
A Private Letter Ruling (PLR) is a written decision by the IRS in response to a specific individual’s request for guidance, as it relates to that individual’s specific situation.
Private letter rulings are only binding on the IRS and the requesting individual, and as such can not be cited as precedent for other cases, although they do give insight as to what the IRS’ position may be on a particular situation. Often, the IRS will take the information from a PLR and redact it for use as a Revenue Ruling, which is guidance for all taxpayers and can be cited as a precedent.
PLR’s have a cost associated with them: generally you must have a tax attorney prepare the request for you, which may cost anywhere from $3,000 to $10,000 depending upon the complexity of your case, and then the IRS charges a fee for delivering the PLR.
This fee used to be fairly innocuous, but in 2006 was increased to $9,000 for most requests, and as much as $3,000 for a simple 60-day rollover ruling – a standard sort of ruling that used to cost only $95. Formerly, the highest fees were $2,750, which was often reduced to $625 if the requestor’s income was less than $250,000. Certain 60-day rollover activities are only allowed once a PLR has been issued – when you for whatever reason are not able to complete the rollover within the 60-days and it’s not due to an automatically-approved reason.
Revenue Rulings, on the other hand, are administrative rulings that explain how the IRS applies the law to specific factual situations. As indicated previously, these rulings are for all taxpayers, and are published in the Internal Revenue Bulletin and the Federal Register.
Revenue Procedures are statements of procedure, rather than application of law (as in Rulings) – such as methods for filing and instructions. An example of the difference between a Revenue Procedure and a Revenue Ruling would be: A Revenue Ruling provides guidance on what items may be deducted as a part of your itemized deductions on Schedule A, such as the definition of unreimbursed employee business expenses; while a Revenue Procedure explains how those deductions are treated, such as Miscellaneous deductions in total are subject to a 2% floor.
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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