Private Letter Ruling (PLR): Definition & Overview

KEY TAKEAWAYS

• The Internal Revenue Service (IRS) issues a private letter ruling (PLR) to taxpayers who require assistance or guidance with their personal tax situation. A letter ruling interprets the tax laws and applies them to the taxpayer’s specific set of facts. The ruling applies only to the taxpayer that requested the ruling and can’t be relied upon by other taxpayers.
• Taxpayers can contact the IRS if they have difficulty navigating complex tax processes or unusual situations. 
• The IRS publishes the Revenue Procedure each year. This document contains relevant updates and guidelines about how to request a ruling. There are fees associated with letter rulings, depending on the type of request.
• The primary goal of PLR is to provide taxpayers with the information they need. It helps reduce the uncertainty and can aid taxpayers in understanding their tax treatment. 

What Is a Private Letter Ruling (PLR)?

A private letter ruling (PLR) is issued by the Internal Revenue Service (IRS) when a taxpayer requires guidance or has questions about their tax situation. In many cases, a taxpayer will contact the IRS for assistance with complex tax situations or unusual circumstances. PLR does not apply to other taxpayers; only to an individual or company that requested the ruling and their specific tax situation. It has to be submitted to the IRS in writing.

For example, it can be common for larger financial transactions to have unclear tax laws or complex processes. The IRS would then issue a written private letter ruling (PLR) in response to the individual taxpayer’s questions. The primary purpose of a PLR  is to provide advice to the taxpayer and ensure compliance with applicable tax laws. 

How a Private Letter Ruling (PLR) Works

The main purpose of a PLR is to help taxpayers understand their tax situation. It can even provide insights into whether or not a potential action could result in a tax violation. It can commonly get referred to as a letter ruling (LTR) and it’s issued by: 

• The IRS Office of Chief Counsel
• The Small Business/Self-Employed Division
• The Large Business and International Division 
• The Wage and Investment Division 
• The Tax Exempt and Government Entities Division 

One of the most important things to consider with a PLR is that it’s entirely specific to an individual and their tax situation. There’s no precedent for PLRs when an individual requests a ruling on their own circumstance. Plus, there is no requirement for the IRS to treat other taxpayers similarly: it’s all based on individual circumstances. 

With that said, the IRS may redact the taxpayer’s personal information in a PLR ruling and publish it. When this happens, the IRS issues a revenue ruling that is binding for all taxpayers. After any relevant and identifiable information regarding the taxpayer has been removed, most PLRs are made public and can get accessed by going to the IRS FOIA Library. 

It’s worth remembering that even after the IRS issues a ruling they can revoke or modify it at any time, even if it is a favorable ruling. A ruling may be revised or revoked if it is determined a ruling was inconsistent or incorrect with the IRS position. 

How to Apply for a Private Letter Ruling (PLR)

It was mentioned above that the IRS publishes the Revenue Procedure at the beginning of each calendar year. It contains the guidelines and relevant process procedures, and also has sample request templates. It also includes a 50-question questionnaire you will need to fill out.

If you’re considering requesting a private letter ruling from the IRS, it can be beneficial to speak with a tax expert or an employee of the IRS. They can help guide you through the proper steps and ensure you have the relevant information required. 

The procedure for requesting a private letter ruling can be incredibly complex. Plus, the filing fees can be substantial.

Summary 

A private letter ruling (PLR) is a written decision that’s sent by the IRS in response to a taxpayer’s request. This often occurs if a taxpayer is unsure about certain tax implications or if they have questions about their tax situation. 

There are many moving parts to filing taxes and the purpose of a PLR is to help provide certainty to the taxpayer. Having a binding ruling will help remove possible confusion and provide advice to taxpayers on what they might expect from the IRS.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.

Written by Sandra Habiger, CPA

Sandra Habiger is a Chartered Professional Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Alongside her accounting practice, Sandra is a Money and Life Coach for women in business.