Representation before the IRS · Legal Authority and References

Private letter ruling

A private letter ruling answers one taxpayer’s question about one set of facts, in advance. It is the only way to get the Service’s position on a transaction before entering it, and it is expensive, slow and narrow by design. The four things a representative must be able to say about it are: who it binds, what it costs, what becomes public, and why it cannot be cited — and the last two are the ones clients find surprising.

The rule

What it is. See the figures table (Reg. § 601.201(a)(2)). Note the two limits inside the definition: it is issued only by the National Office, and it applies the law “to a specific set of facts.”

The neighbouring documents. A determination letter is issued in response to a written inquiry and applies previously announced principles to the particular facts — but only where the determination can be made on clearly established rules, and not where the question is novel. An information letter does no more than call attention to a well-established interpretation “without applying it to a specific set of facts.” An opinion letter addresses the acceptability of the form of a master or prototype plan. See the figures table for the first two (Reg. § 601.201(a)(3), (5)).

It costs money. See the figures table (IRC § 7528). The statute requires a user fee programme for ruling, opinion and determination letters and “other similar requests.” Fees vary by category, are set by reference to “the average time for (and difficulty of) complying with requests in each category,” and are payable in advance. The Secretary provides exemptions and reduced fees, including a limited exemption for certain small-employer pension plan determination letters.

It becomes public. A private letter ruling is a written determination within IRC § 6110(b)(1)(A) — “a ruling, determination letter, technical advice memorandum, or Chief Counsel advice” — and § 6110 makes written determinations open to public inspection after the deletion of identifying and confidential material.

It is not precedent. “Unless the Secretary otherwise establishes by regulations, a written determination may not be used or cited as precedent” (IRC § 6110(k)(3)).

But it is authority. Private letter rulings and technical advice memoranda issued after 31 October 1976 appear on the closed list of authorities in Reg. § 1.6662-4(d)(3)(iii). So a PLR issued to someone else carries weight in a substantial authority analysis even though it cannot be cited as precedent.

And to its own recipient it is more. There is substantial authority for a taxpayer’s treatment where it is supported by the conclusion of a ruling or determination letter issued to that taxpayer, or by a TAM naming them — unless there was a misstatement or omission of a material fact, or “the facts that subsequently develop are materially different” from those on which the determination was based (Reg. § 1.6662-4(d)(3)(iv)(A)).

A PLR can stop being authority. It “is not authority if revoked or if inconsistent with a subsequent proposed regulation, revenue ruling or other administrative pronouncement published in the Internal Revenue Bulletin” (Reg. § 1.6662-4(d)(3)(iii)).

Current figures

How it works in practice

A ruling binds the Service, not the taxpayer, and only as to the requester. The IRS will honour a PLR against itself for the taxpayer it was issued to, on the facts represented. It does not bind that taxpayer, who may take a different position, and it does not bind the Service as to anybody else. A client who hears “legally binding” should be told which direction it runs.

Everything depends on the facts as represented. The ruling interprets the law applied to the facts the taxpayer supplied. Reg. § 1.6662-4(d)(3)(iv)(A) withdraws the protection where there was a material misstatement or omission, or where the facts that later develop are materially different. So the drafting of the request is the work: a ruling obtained on a description that does not match what actually happens is worth nothing.

It will be published. Clients routinely assume a “private” ruling is private. It is not — it becomes a publicly inspectable written determination with identifying details removed. Where the transaction itself is sensitive, that has to be part of the decision to request one, and the redaction process is something the taxpayer participates in.

Free is the wrong assumption. User fees are required by statute, vary by category, and are payable in advance. Add the professional time to draft the request and the wait for the National Office, and a ruling is a considered commercial decision, not a routine step.

Cite someone else’s PLR for weight, never as precedent. It is on the § 1.6662-4 authority list if issued after 31 October 1976, so it belongs in a substantial authority weighing. Presenting it as controlling misstates its status under § 6110(k)(3) and invites a correction that undermines the rest of the argument.

Date-check any PLR before relying on it. It falls out of the authority list entirely if revoked or if inconsistent with a later proposed regulation, revenue ruling or IRB pronouncement. A ruling from a decade ago on an issue the Service has since addressed publicly may be worth nothing.

Know which document you actually need. A determination letter is available only where the answer follows from clearly established rules — which means it is faster and cheaper but unavailable on the novel question that usually prompts the enquiry. An information letter applies nothing to any facts and cannot support a position. If the question is genuinely novel, the PLR is the only route.

The taxpayer’s own prior ruling comes before outside research. Before building a substantial authority file, ask whether the client holds a ruling or determination letter of their own, or is named in a TAM. That is substantial authority outright, subject only to the material-misstatement and changed-facts conditions.

How this has changed

Public inspection is the reason the 31 October 1976 date exists. IRC § 6110 was enacted by the Tax Reform Act of 1976 and required written determinations to be opened to inspection. Reg. § 1.6662-4(d)(3)(iii) admits private letter rulings and technical advice memoranda to the authority list only if issued after 31 October 1976 — because earlier ones were never systematically released. The date is not arbitrary and it has not moved.

Chief Counsel advice was added to the written determination definition. IRC § 6110(b)(1)(A) now reads “a ruling, determination letter, technical advice memorandum, or Chief Counsel advice.” CCA was brought within § 6110 after litigation in the 1990s over whether it had to be disclosed, and it therefore carries the same no-precedent rule.

User fees became a permanent statutory programme. IRC § 7528 replaced a series of temporary appropriations-act provisions that had authorised ruling fees since the late 1980s. The fees themselves are set administratively and revised annually, so the amount is never something to carry forward from memory — check the current schedule.

The regulation’s institutional references are superseded. Reg. § 601.201 still describes issuance under “the general supervision of the Assistant Commissioner (Technical),” redelegated to the Directors of the Corporation Tax and Individual Tax Divisions, and speaks throughout of district directors issuing determination letters. Those offices were restructured out of existence after the IRS Restructuring and Reform Act of 1998. The definitions of ruling, determination letter and information letter are current; the offices named around them are not.

Exam focus

Know that a PLR is issued only by the National Office, to one taxpayer, applying the law to a specific set of facts.

Know that it binds the IRS as to that taxpayer only, on the facts represented, and does not bind the taxpayer or anyone else.

Know that it may not be used or cited as precedent (IRC § 6110(k)(3)) but is authority for the substantial authority analysis if issued after 31 October 1976.

Know that requests carry user fees, payable in advance and varying by category (IRC § 7528).

Know that written determinations are open to public inspection with identifying details deleted (IRC § 6110).

Know the neighbours: a determination letter is available only on clearly established rules and not for a novel question; an information letter applies nothing to any facts.

Check yourself

1. Which statement about a private letter ruling is NOT true? (A) The request carries no fee (B) It binds the IRS as to the taxpayer who requested it, on the facts represented (C) It is published with identifying details removed (D) It rests on the specific facts the taxpayer supplied Answer: A. IRC § 7528 requires user fees, payable in advance and varying by category of request.

2. To whom may a private letter ruling be applied? (A) As precedent in similar cases (B) As precedent in cases the IRS determines are identical (C) Only to the taxpayer who requested it, on the facts presented (D) To anyone, as a non-binding suggestion Answer: C. IRC § 6110(k)(3) bars its use as precedent, and it binds the Service only as to the requester.

3. A practitioner finds a 2018 private letter ruling issued to an unrelated taxpayer supporting a position. What is its status? (A) Binding on the IRS (B) Authority for the substantial authority weighing, but not citable as precedent (C) Not authority at all (D) Authority only if the facts are identical Answer: B. It is on the Reg. § 1.6662-4(d)(3)(iii) list as a PLR issued after 31 October 1976.

4. When will the IRS not issue a determination letter? (A) Where the taxpayer has not paid the fee (B) Where the question is novel or cannot be answered on clearly established rules (C) Where the taxpayer is under examination (D) Where the amount at stake is small Answer: B. Reg. § 601.201(a)(3). A novel question needs a ruling from the National Office.

5. A taxpayer obtains a ruling and then carries out the transaction with a materially different feature. What happens to the substantial authority the ruling gave? (A) It survives unchanged (B) It survives if the change was inadvertent (C) It is lost — the protection does not apply where the facts that subsequently develop are materially different (D) It survives until the IRS revokes the ruling Answer: C. Reg. § 1.6662-4(d)(3)(iv)(A), which also withdraws it for a misstatement or omission of a material fact.