Private letter rulings

One of the major “insurance” opportunities the IRS offers for uncertain tax positions is called private letter rulings. These rulings are given to businesses and individuals on a case by case basis and cannot be relied upon by other taxpayers, but in the right instances can be very beneficial for taxpayers as a basis against an adverse IRS opinion. IRS private letter rulings cost between $625 and $11,500 (for a complex private letter ruling).

Business owners considering filing for a private letter ruling should do their homework before sending in a request for a private letter ruling as there are certain pitfalls associated with this type of filing, including:

1. You may have an issue that is already covered under an automatic or simplified method, that is both standardized and less costly than a private letter ruling.
2. Check IRS publications for matters that are already covered under statute, court decisions, revenue ruling, revenue procedure, etc as these have a higher standing as far as the IRS is considered than private letter rulings.
3. Make sure the IRS has not placed your topic of consideration on its “no ruling” list.
4. Seek guidance from the IRS directly. The IRS may be able to direct you to an IRS publication or revenue ruling that speaks to your issue directly.

Remember, an IRS private letter ruling may not always be the answer, but $650 may be much more tolerable than an adverse IRS ruling down the road with associated fees and penalties that can add up quickly.