A Few Words About PLRs

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L1: A Few Words About PLRsPrivate Letter Rulings (PLRs۝) have often been called the making of law one taxpayer at a time۝. As a result, we really shouldn’t be too surprised that a PLR submission reads just like a legal brief or pleading in a substantive trial. All PLRs are reviewed, studied and ruled upon by one or more of the various departments of the Assistant General Counsel’s office of the Internal Revenue Service. In our particular case, this is done by the Tax Exempt & Governmental Entities Department because invariably we are discussing the taxability of distributions from a tax-exempt trust; e.g the trust that holds the assets before they are distributed, thus applying IRC 72(t), is an IRC 501(a) tax-exempt trust. Following are the top ten issues everyone should aware of when thinking about PLRs; either reading them or potentially applying for one:
1.The primary concern of the AGC’s office, when reviewing / ruling upon a PLR is the fair (at least from their perspective) and CONSISTENT application of the law. Their greatest fear is inadvertently issuing a ruling that then creates some version of a loop hole big enough for a Peterbuilt truck.
2.PLRs take anywhere from 4 to 8 months to completion & this is measured from the date the PLR is submitted to the IRS.
3.Fees range from $625 (for taxpayers with gross income under $250,000) to $2,870. Groups of taxpayers can not gather together for a ruling unless the group is related in some specific fashion; such as all are shareholders of a common entity.
4.The people who work for the AGC’s office are not IRS drones; instead they are relatively bright people, almost all of which are CPAs, attorneys or actuaries; many of whom are dual degreed.
5.The AGC’s office focuses heavily on two words: prospective۝ versus retrospective۝. The AGC always wants to opine on a taxpayer’s prospective transactions before commencement or coincident with commencement. They do not and often will not opine on a series of transactions that has already commenced.
6.(5) above gets even worse if a taxpayer is already under examination or has received a Notice of Deficiency or Notice of Intent to Levy from the IRS.
7.All PLRs are published 180 days after their issuance to the submitting taxpayer. However, two things happen to the published PLR: one, it is redacted to remove all of the names, dates, places & amounts; two, anywhere from 50% to 90% of the details, reasoning, alternatives, etc. are removed. What started as a 20 page pleading becomes a 3 page published PLR. Thus, we are often get just the basic facts and result and left to infer the logic behind the ruling.
8.Taxpayers are offered the opportunity to rescind / retract their PLR request when they are informed that the IRS intends to rule adversely. As a result, almost on any subject, we might find a 100 PLRs on a specific subject and 98 of them are affirmative and only 2 are adverse. Rest assured that 20 or 30 or more rulings were going to issued as adverse but were retracted by the taxpayer.
9.The AGC’s office does not like pro se۝ representations in the same manner that a judge tolerates a pro se representation in his court room on any matter of greater importance than a traffic ticket. Therefore, no one should prepare a PLR request without expert assistance. Thus, in addition to the filing fees, a taxpayer considering a filing should anticipate professional fees ranging from $3,000 to $10,000.
10.The PLR ruling process is reasoned / logical and evidence driven process. There are no oral arguments nor court room theatrics. Furthermore, taxpayers absolutely must disclose all, and I mean all, the facts including those that are adverse to the taxpayer’s position. To not do so is considered perjury and invalidates any PLR issued.
All of the above sounds somewhat severe and often stacks the odds in favor of the government which then begs the question: Why would I go through all of this?۝ The answer lies in: time, money & exposure. A PLR can be obtained in less than a year, litigation usually takes 2 – 3 years. A PLR, at least on this subject, usually costs less than $5,000; litigation probably starts at $20,000 and goes up. One’s exposure in the PLR process is almost nil along with the ability to alter proposed transactions to satisfy the IRS; in litigation, all the transactions have already occurred. Then, in court, you either win or lose and the IRS easily has a 80% or better win rate in US Tax Court.
TheBadger
wjstecker@wispertel.net
2005-08-11 08:40, By: TheBadger, IP: [66.250.23.21]

L2: A Few Words About PLRsBill:
Thanks for you excellent description of what goes into the making and rulling of a PLR. I had no idea of what all went into this process but had long summized that it was somewhat complicated and expensive.
Gordon:
I think this would make a good “article” to post on the site.
Next week … after I finish my taxes for the Aug 15 deadline …I’ll write my Letter to Congress on the excepted, additional withdrawals from and IRA under SEPP, and I’ll post it for others to use as they see fit. I still think it’s worth a try.
Jim2005-08-11 09:30, By: Jim, IP: [70.184.1.35]