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. 
• 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 when it comes to tax processes.
• The primary goal of PLR is to provide taxpayers with the information they need. It helps reduce the possibility of uncertainty and can aid taxpayers in understanding their tax treatment.

What Is a Private Letter Ruling (PLR)?

A private letter ruling (PLR) gets 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. 

For example, it can be common for larger financial transactions to include unclear tax laws or complex processes. The IRS would then issue a private letter ruling (PLR) in response to the individual taxpayer. The primary purpose of a private letter ruling is to help advise the taxpayer and remove any possibilities of confusion.

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 does have the capability to hide the personal information of a PLR ruling. When this happens, the IRS would instead issue a revenue ruling. This ultimately ends up being binding for all taxpayers.

Essentially, this means that even after the IRS issues a ruling they can revoke or modify it at any time they see fit even if it is a favorable ruling. 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 noting that this only occurs if it’s determined a ruling was inconsistent or incorrect with the IRS position. 

How to Apply for a Private Letter Ruling (PLR)

It was mentioned above, but the IRS publishes the Revenue Procedure at the beginning of each calendar year. It breaks down the guidelines and processes and also has sample request templates. As well, it includes 50 or more questions you will need to answer. 

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 decision that’s sent by the IRS in response to taxpayer requests. 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. It helps remove possible confusion and advises taxpayers on what they might be able to expect from the IRS.