Private Letter Ruling (PLR)

What Is a Private Letter Ruling (PLR)?

A private letter ruling (PLR) is a written decision by the Internal Revenue Service (IRS) that is sent in response to a taxpayer’s request for guidance on unusual circumstances or complex questions about their specific tax situation. For certain transactions involving large amounts of money, the tax law may be unclear. The purpose of the private letter ruling is to remove any uncertainty and to advise the taxpayer, usually a business, regarding the tax treatment they can expect from the IRS given the circumstances specified by their ruling. A private letter ruling can also help a taxpayer confirm whether or not a potential action will result in a tax violation.

A private letter ruling is also sometimes called a letter ruling (LTR). A private letter ruling is issued by the IRS Office of Chief Counsel; the Large Business and International Division; Small Business/Self Employed Division, Wage and Investment Division; and the Tax Exempt and Government Entities Division.

How a Private Letter Ruling (PLR) Works

A private letter ruling is specific and applicable only to an individual taxpayer and their tax situation at the time of the request. Private letter rulings on behalf of other taxpayers cannot be used as precedent by a person requesting a ruling regarding their own issue, and in no way binds the IRS to take a similar position when dealing with other taxpayers.

However, the IRS can redact the personal content of a private letter ruling and issue it as a revenue ruling, which becomes binding on all taxpayers. Even with a favorable ruling, a taxpayer has no absolute guarantee of the tax consequences, since the IRS can modify or revoke a previously issued private letter ruling if it is later determined that the ruling was incorrect or inconsistent with the current position of the IRS.

Private letter rulings are generally made public after all identifiable information about the taxpayer in question has been removed, and they can be accessed through the IRS FOIA Library.

How to Request a Private Letter Ruling

Taxpayers requesting a private letter ruling should consult the Revenue Procedure published by the IRS at the start of each calendar year, which describes guidelines and updates for the process and includes sample request letter templates and a checklist of over 50 questions that must be answered. Taxpayers planning to request a private letter ruling should also consider consulting with an IRS employee or another tax expert for help with the process. The filing procedure is extremely technical and exact compliance is required for a successful filing.

One of the burdens of requesting a private letter ruling is the cost, which has steadily risen in recent years. Fees incurred by the taxpayer can range from $150 for simple requests to $50,000 for pre-filing agreements. For a specific transaction, a ruling can cost as much as $30,000, in addition to the professional fees that a taxpayer may incur. The IRS generally completes ruling requests within 60-90 days, although the process can take significantly longer if multiple branches of the IRS need to review the ruling or if there are other extenuating circumstances.