How to Get a Private Letter Ruling

How to Get a Private Letter Ruling


January 30, 2013

 

Like every other tax credit site manager, you may not always be sure of the right way to handle a situation. And the owner may sometimes ask you questions that you can’t answer. For example, you may not know whether the IRS can give the owner more time to elect the site’s minimum set-aside, or whether the IRS will still consider your site residential if you offer certain nursing or medical services to residents. If you don’t do the right thing, your state housing agency may cite you for noncompliance, putting the owner’s tax credits at risk.

 

Like every other tax credit site manager, you may not always be sure of the right way to handle a situation. And the owner may sometimes ask you questions that you can’t answer. For example, you may not know whether the IRS can give the owner more time to elect the site’s minimum set-aside, or whether the IRS will still consider your site residential if you offer certain nursing or medical services to residents. If you don’t do the right thing, your state housing agency may cite you for noncompliance, putting the owner’s tax credits at risk.

     You can get direction from the IRS on how to handle situations you’re unsure of by applying for a private letter ruling (PLR). PLRs aren’t law, but rather an interpretation and application of law and regulation that the IRS will follow, within certain conditions and limitations. The PLRs do bind the taxpayers that request them. So if the owner of your site requests a PLR, it can safely rely on the ruling.

     We’ll tell you the steps you must take to help your site’s owner get a PLR, and what you and the owner should keep in mind when requesting one.

Take Five Steps to Get PLR

Here are the steps involved in getting a PLR:

     Step #1: Get advice from a tax credit attorney. Before moving ahead with the request for a PLR, advise the owner to consult a tax credit attorney. An attorney can determine whether it’s wise or even necessary to request a PLR. The attorney can confirm that there’s a need for a ruling. The IRS ordinarily won’t issue “comfort” letter rulings on matters that are already squarely addressed by statute, regulation, court decision, revenue ruling, revenue procedure, or notice.

     And because the IRS revenue procedure that explains how to request a PLR is complex, the attorney can help the owner write the PLR request in the form the IRS requires. The current procedures are in Revenue Procedure 2012-01, which can be found in Internal Revenue Bulletin 2012-1 or at www.irs.gov/pub/irs-irbs/irb12-01.pdf. A sample letter ruling request is included in the appendix.

     You may also seek advice directly from the IRS. Before applying for a ruling, in addition to doing research to convince the IRS to rule favorably, you should call an IRS employee who deals in your subject matter to discuss your proposed ruling request. Most published rulings include a name and phone number of the person involved with the ruling who can direct you to someone with whom to informally discuss your proposed request. Revenue Procedure 2012-1 includes a list of phone numbers to request a pre-submission conference in person or by telephone.

     Step #2: Prepare request. The next step is to prepare a written statement that includes the information the IRS needs to consider the request. Even if an attorney prepares the actual statement, you may need to help the attorney by supplying some information. Although some PLR requests require additional information, all requests must include the following:

  • A complete statement of facts and other related information;
  • An analysis of material facts;
  • A statement indicating whether the issue affects any tax returns the owner already filed;
  • A statement indicating whether a ruling on the same or a similar matter has been issued or requested, or is pending;
  • A list of authorities that support the request;
  • A list of authorities that appear to run contrary to the request;
  • A statement identifying any pending legislation that would affect the request;
  • A statement identifying information to be deleted from the copy of the PLR the IRS will make available for public inspection;
  • The owner’s signature or the signature of its authorized representative;
  •  A list of authorized representatives;
  •  A power of attorney and declaration of representative from each authorized representative;
  •  A statement attesting to the accuracy of the request under penalties of perjury (using language provided in the revenue procedure) [Rev. Proc. §7.01(15)]; and
  • The number of copies of the request the owner is submitting. A taxpayer generally needs to submit only one copy of a PLR request. But if the request covers more than one issue, the IRS encourages taxpayers to submit multiple copies. Also, under certain circumstances outlined in the revenue procedure, taxpayers must submit two copies of their PLR requests [Rev. Proc. §7.01(16)].

     Step #3: Assemble required documents and attach them to request. The IRS requires the owner to attach the following documents to the PLR request:

  • Copies of all relevant documents, such as the owner’s tax credit application and the site’s extended use agreement; and
  •  A checklist covering all items included in the request. (You can get a blank checklist from Appendix C of the revenue procedure.)

     Step #4: Submit request to IRS with required fee. The owner must submit the PLR request to the IRS’s national office. The address to use depends on how the owner delivers the request. For more information, check the revenue procedure [Rev. Proc. §7.03(1)]. In some cases, the national office may refer the request to a local IRS field office [Rev. Proc. §14.03].

     If you’re helping with the submission, make sure the owner includes a check or money order to cover the fee for filing a PLR request. Read the fee schedule in Appendix A of the revenue procedure to determine the correct fee. Fees range from $625 to $11,500.

     Step #5: Respond to any issues IRS rep raises. In most cases, an IRS representative must contact the owner within 21 days after the IRS gets the PLR request to discuss procedural matters. The representative must tell the owner whether he’ll recommend to the IRS that it issue a PLR and what the PLR should say. And the representative may ask the owner to send more information to help the IRS properly consider the request [Rev. Proc. §10.02].

     Also, be sure to maintain contact with the IRS while your ruling is pending. Obtaining a complex PLR generally takes months. Keeping in touch with the person listed in the IRS acknowledgment of receipt of your ruling application can speed up the process.

Issues IRS Won’t Consider

The IRS won’t consider all issues presented in a PLR. It won’t respond to:

     Issues that arise only in hypothetical or alternative situations. The IRS may issue a PLR in response to owners’ questions “about their status for tax purposes” and the “tax effects of their acts or transactions…” [Rev. Proc. §3]. But the IRS won’t issue a PLR that would bind an owner in a situation that very well may not occur [Rev. Proc. §6.02].

     Frivolous issues. The IRS warns against requesting PLRs for frivolous issues. A “frivolous issue” is “one without basis in fact or law” or that supports “a position that courts have held groundless” [Rev. Proc. §6.10]. The revenue procedure gives examples, such as claiming that filing a tax return violates constitutional claims such as due process, involuntary servitude, or that your situation somehow constitutes an unreasonable search.

     Requests to change the law. If you or the owner disagree with part of the tax credit law, don’t try to change it by requesting a PLR. Only Congress can amend the tax credit law. The IRS is limited to applying the law to an owner’s particular situation.

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