Asking the IRS for a Letter Ruling

Asking the IRS for a Letter Ruling


Most taxpayers consider it important to maintain a low profile where the Internal Revenue Service (IRS) is concerned. You may face a particularly complex tax question, however, that does not appear to be answered by IRS rules. Asking the agency for help before you file your tax return may prove worthwhile. Why should you think about it now? Because it takes a minimum of several months to receive a ruling. So, smart taxpayers give themselves plenty of time for the process to unfold.


You could, of course, take the immediate approach: Telephone the IRS office for help. However, such inquiries via the telephone often yield advice that may be unclear. The more formal approach is to describe your quandary to the IRS and receive a written opinion, known as a “Letter Ruling,” on the tax consequences of your proposed or completed transaction. You can ask for help on almost any topic, but the IRS won’t rule on hypothetical questions, issues of fact such as the value of property, or topics the agency is still studying.


If you receive a ruling and it is in your favor, you are virtually assured your return will pass IRS scrutiny on that point. If successful, you may save substantial taxes. If unsuccessful, you may have spent a good deal of time, effort, and money in vain. Your tax and legal consultants can help you determine whether the expense will be worth the possible savings.


To get a ruling, you must send the IRS a summary of facts about your case. Professional help is almost always essential in developing the evidence. Among the information you must include:

  1. A statement of the tax issue you want addressed and the desired outcome;
  2. An explanation of any business purpose;
  3. Legal arguments to back your position;
  4. Copies of supporting documents such as contracts or wills; and,
  5. Addresses and Social Security numbers of all parties involved.


It may also be wise to ask for a face-to-face conference if the ruling is likely to be found against you. That will give you and your advisor a chance to revise your plan or negotiate with the IRS an outcome that may be more favorable to you.


The IRS generally will contact you in a few weeks to discuss your request. In some cases, the IRS may ask for more information or specify additional formalities you must follow. The agency will not issue a ruling if you don’t follow precise procedures or if your question is already answered by IRS instructions.


The decision is made public, but your name and other identifying items are deleted. Although the ruling may apply only to your case, tax specialists study letter rulings for hints of what the IRS is thinking.


Seeking a letter ruling is not without ramifications. While the IRS will allow you to rescind a request for a ruling if it appears that a negative opinion will be entered against you, the IRS may keep your withdrawn request in mind when deciding whether to audit your return.


Procedures for letter rulings are updated yearly and are usually printed in the first weekly issue of the Internal Revenue Bulletin, which is available in many libraries. The process, however, can be complex, and professional advice will eliminate a host of future problems. When it comes to dealing with the Internal Revenue Service, a professional approach, knowledge of the rules, and sound judgment are advised.

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