Requesting a Private Letter Ruling from the IRS: Key Practical and Legal Considerations

Requesting a private letter ruling (PLR) from the IRS’ Office of Chief Counsel is an option for large businesses and international taxpayers seeking to “determine the tax treatment of a specific situation” without facing an audit. It is one of several pre-filing and pre-resolution audits that are available to eligible taxpayers—and, when it is the right option, it can be an effective tool for eliminating uncertainty and mitigating risk. Learn more from Texas business tax attorney Lawrence Brown.

When Does It Make Sense to Request a Private Letter Ruling?

Seeking a private letter ruling from the IRS’ Office of Chief Counsel offers a means to proactively resolve potential high-states federal tax controversies—whether by securing the IRS’ approval for a transaction or filing or by obtaining the guidance needed to avoid undesirable tax consequences. As a result, in the right circumstances, obtaining a PLR can provide large companies and international taxpayers with the confidence they need to move forward with complex transactions or sophisticated tax strategies without fear of facing an audit down the line. As the IRS explains:

“A private letter ruling . . . is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts. A PLR is issued to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed. A PLR is . . . binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described.”

Private letter rulings are both taxpayer and circumstance-specific. They address specific issues under specific sets of circumstances. The IRS makes this clear, stating that a PLR, “may not be relied on as precedent by other taxpayers or IRS personnel.” As a result, even if a taxpayer intends to conduct a transaction or pursue a tax strategy that is similar to one covered under a PLR obtained previously, the prior PLR does not necessarily guarantee that the current transaction or tax strategy will escape (or withstand) scrutiny.  

The PLR program has a $30,000 “user fee,” which is only refundable if the Office of Chief Counsel declines to issue a ruling. Additionally, requesting a PLR is not an option if:

• The taxpayer is already facing an audit related to the issue for which the PLR is sought;
• The taxpayer is already in litigation with the IRS related to the issue for which the PLR is sought; or,
• The tax treatment of the issue is, “clearly or adequately addressed by statute, regulations, court decisions or authority published in the Internal Revenue Bulletin.”

With these considerations in mind, large businesses and international taxpayers that are considering a PLR request in relation to a complex tax issue will want to consult with their tax counsel before proceeding. If the issue is “clearly or adequately addressed” by existing authority, the Office of Chief Counsel will decline to issue a ruling; and, in this scenario, requesting a PLR will lead to delays (and potentially lead to risks) that could have been avoided.

What Are the Alternatives to Requesting a Private Letter Ruling?

While requesting a private letter ruling is one possible option for proactively resolving complex tax issues with the IRS, large businesses and international taxpayers have a variety of other options as well. Along with engaging tax counsel to assess whether the issue is “clearly and adequately addressed” by existing authority, these potential alternatives include:

• Requesting a determination letter to confirm that a transaction or tax position is supported by “clearly established rules.” Similar to a PLR, a determination letter “represents an agreement on treatment of the transaction [in question].”
• Requesting a pre-filing agreement (PFA) regarding the tax treatment of a particular transaction or tax position under “well-settled tax law principles.”
• Requesting an advance pricing agreement (APA) in order to “seek tax certainty and the avoidance of a transfer pricing dispute with the IRS.”
• Enrolling in the IRS’s compliance assurance process (CAP) to “seek[] tax certainty through real-time resolution . . . before filing.”
• Participating in the IRS’s industry issue resolution program (IIR) to obtain certainty on a tax issue that “affects a significant number of business taxpayers.”

Similar to requesting a PLR, each of these options has its own set of restrictions and requirements, including applicable user fees (with the exception of the CAP and IIR). Here too, experienced tax counsel will be able to assist with evaluating the viability of each of these alternatives and making a strategic decision about how to proceed.

If I Need to Request a Private Letter Ruling, What Are the Next Steps?

The requirements for requesting a private letter ruling are outlined in Revenue Procedure 2025-1. Including its Appendices, Revenue Procedure 2025-1 is 115 pages long, and it is extraordinarily dense. The “general instructions” for submitting a PLR request alone are nearly 20 pages, and they address issues ranging from the requirements for submitting a “complete statement of facts” to when PLR applicants must proactively communicate with the Office of Chief Counsel during the process.

But, despite the complexity of the PLR process, requesting a PLR can be a relatively efficient and cost-effective approach to mitigating tax risk in the right set of circumstances. If you think that it may be in your company’s best interests to request a PLR, consulting with experienced counsel who can help you make an informed decision will be the first step in the process.

Discuss Your Company’s Complex Tax Issue with Texas Business Tax Attorney Lawrence Brown

Texas business tax attorney Lawrence Brown has extensive experience representing large businesses and international taxpayers in complex federal tax matters. If you have questions about requesting a private letter ruling from the Office of Chief Counsel (or any of the alternatives that are available), we invite you to get in touch. To request a confidential consultation at Brown Tax, P.C., please call 888-870-0025 or contact us confidentially online today.