Ever wonder what a private letter ruling (PLR) is? Do you have a question about how to apply the tax law to a prospective deal? Wouldn’t it be great if you could get the IRS to give you an answer in advance of submitting your tax return?
You might have the ability to do so by obtaining a private letter ruling (PLR) from the IRS.
You get a PLR by submitting a request with the IRS National Office. The IRS is normally bound by the response it gives a taxpayer in a PLR. However PLRs may not be counted on by other taxpayers.
This sounds great in theory– however in practice, seeking a PLR is normally not an excellent idea.
There Are Numerous Reasons Why Not:
- PLR’s are expensive. The filing cost is $3,000 for the smallest organizations. Bigger companies must pay as much as $38,000. You’ll likewise require professional help to prepare a comprehensive PLR request.
- A PLR may not be needed. The IRS has automated or streamlined techniques for obtaining its consent without a PLR for many typical circumstances, including late S corporation elections, late IRA rollovers, and numerous changes in accounting method.
- PLR’s are unavailable for many kinds of tax questions, consisting of those that are under IRS examination, were plainly addressed in the past, or are too fact extensive.
- Private letter rulings (PLR’s) can take a long period of time to obtain– 6 months or more for complex questions.
- PLR’s can backfire. Even if the IRS issues a favorable PLR, you will now be on the agency’s radar, which might increase your chances of an audit.
Provided all these drawbacks, you should seek a PLR only when a more affordable alternative is not available– for instance, when you need to do a late IRA rollover and do not qualify for the streamlined IRS procedure.
In some instances, it’s wise to seek advance IRS approval of complicated deals involving significant money.
Obtaining a favorable PLR in such a case would guarantee you the transaction passes IRS muster. These circumstances, however, are rare.
Takeaways
Here are five things to know:
- You can get the IRS to respond to certain kinds of questions or waive procedural rules by filing a request for a PLR.
- PLRs are pricey. The standard cost is $38,000, though smaller sized organizations can pay $3,000 or $ 8,500. You need to also pay a tax pro to prepare a comprehensive PLR request.
- PLRs are not available for numerous kinds of tax questions, including those that are under exam, already clearly responded to in the past, or too fact extensive.
- You may not need a PLR. The IRS has actually automatic or simplified methods for getting its approval without a PLR for lots of common situations, including late S corporation elections, late IRA rollovers, and many changes in accounting methods.
- You ought to seek a PLR only when a less expensive option is unavailable and the potential money included justifies the time and cost.
If you have any concerns or need my support with getting a response from the IRS, please call 509-543-7600 or send a request HERE.