Make Sure PLR Request Contains Required Information
A private letter ruling (PLR) is a written response issued by the IRS to an owner or taxpayer when the owner asks a question about the tax effects of its acts or transactions. The questions posed by site owners usually entail uncertainty about how to handle a situation and the need for guidance on how to avoid the recapture of tax credits. The IRS-issued PLR interprets and applies the law to a specific set of facts, and the owner or manager who requested the PLR can rely on the conclusions expressed in it.
For example, in a recently released PLR, an owner requested an extension of time to correct a first-year certification designation on Form 8609, the Low-Income Housing Credit Allocation and Certification. According to the PLR, the owner mistakenly failed to identify the site buildings as a multiple building project. Each building is considered a separate project under IRS Code Section 42(g)(3)(D), unless, before the close of the first calendar year in the project period, each building that is (or will be) part of a multiple building project is identified by attaching a statement that identifies all the project buildings. The statement must be attached to this Form 8609 and include: (1) the name and address of the project and each building in the project; (2) the BIN of each building in the project; (3) the aggregate credit dollar amount for the project; and (4) the credit allocated to each building in the project. Notwithstanding a checked “Yes” box on line 8b of Form 8609, failure to attach a statement with the required information results in each building being considered a separate project under Section 42(g)(3)(D).
In this case, the IRS agreed to grant the owner a 120-day extension to make the correct election and submit the appropriate statement. Under Section 301.9100-1(c), the IRS Commissioner has the discretion to grant a reasonable extension of time under the rules set forth in Sections 301.9100-2 and 301.9100-3 to make a regulatory election or a statutory election. Here, the IRS concluded that the owner had acted reasonably and in good faith, and that granting an extension wouldn’t prejudice the interests of the government [PLR 128604-17, No. 201813005 (3/30/2018)].
PLRs aren’t law, but they do bind the owner that requested them. In other words, owners can’t rely on a PLR issued to another taxpayer, no matter how similar the fact pattern. Private letter rulings for LIHTC credits are under the jurisdiction of the Associate Chief Counsel (Passthroughs and Special Industries). And the most recent instructions for submitting a request for a private letter ruling are provided as the first Revenue Procedure of each calendar year—so Revenue Procedure 2018-1 contains the current instructions.
Timing of PLR Requests
A PLR should be requested before filing the tax return on which the tax effects or transaction at issue are to be reported. If you do file a return reflecting the issue after requesting a PLR, you must notify the Associate Counsel and attach a copy of your request to the tax return.
Generally, the IRS won’t issue a PLR to an owner if: (1) the issue is being examined on the owner’s return for an earlier year; (2) the issue is being considered by Appeals on the owner’s return for an earlier year; or (3) the issue is included in a pending Tax Court case involving the owner. There are exceptions to the rule, but the basic idea is to request the private letter ruling before the tax return is filed.
The IRS may decline to issue a letter ruling when appropriate in the interest of sound tax administration or on other grounds, whenever warranted by the facts or circumstances of a particular case. As an alternative, the IRS may issue an “information letter” calling attention to well-established principles of tax law.
Pre-submission conference. Before applying for a ruling, you can informally speak with an IRS employee who deals in your subject matter to discuss substantive or procedural issues relating to a proposed transaction. An owner or owner’s representative may request a pre-submission conference in writing or by telephone. If the owner’s representative is requesting the pre-submission conference, a power of attorney is required. The owner should use Form 2848, Power of Attorney and Declaration of Representative, to provide the representative’s authority. If the owner’s representative is requesting the pre-submission conference by telephone, a representative in the Associate Counsel’s office will provide the fax number to send the power of attorney (or, as appropriate, tax information authorizations) prior to scheduling the pre-submission conference. Revenue Procedure 2018-1 includes a list of phone numbers you may call to request a pre-submission conference.
The request must identify the owner and briefly explain the primary issue so it can be assigned to the appropriate branch. If submitted in writing, the request should also identify the Associate Counsel office expected to have jurisdiction over the request for a letter ruling. A written request for a pre-submission conference should be sent to the appropriate address listed in Sec. 7.04 of Revenue Procedure 2018-1.
Request submission. The request for a private letter can be submitted using normal mail, private delivery service, or hand delivery. After the IRS receives it, you’ll receive an acknowledgment letter. Within 21 days, the owner or the owner’s representative will be contacted to discuss procedural issues, and where possible, technical issues such as how the Associate Counsel may rule on the request, if additional information is needed, or if modification of the facts would render a more favorable outcome.
The owner may withdraw your PLR request at any time before the ruling is signed by the IRS, but the user fee ordinarily isn’t returned. However, if the Associate Counsel declines to issue a ruling, the user fee will be returned. The user fee for submitting a PLR request is payable with the submission. The user fee schedule is listed in Appendix A of Revenue Procedure 2018-1.
Once completed, the private letter ruling will be sent directly to the owner. The IRS may send copies to the representatives designated on Form 2848, but not more than two. In addition, the Associate Counsel also sends a copy to the IRS official who has examination jurisdiction over the owner’s tax return. The PLR should be attached to the affected tax return when it is filed.
Information to Include in PLR Request
While the format of a PLR request isn’t dictated, specific information must be included in it. A sample format for a PLR request is provided in Appendix B of Revenue Procedure 2018-1. Even if an attorney prepares the request, an owner may need to help by supplying some of the information. All requests must include the following:
- Complete statement of facts, including identification of all interested parties, disclosure of annual accounting periods, description of the business activity, business reasons for asking the question, and detailed description of the problem for which the request is being made;
- Documentation to support those statements, such as contracts or agreements that are pertinent to the issue;
- An analysis of the facts and explanation of why they’re important to the issue;
- Identification of the authorities that you believe support your position, such as sections of the Internal Revenue Code. Of course, you’re also expected to identify and discuss any contrary authorities, tax treaties, and pending legislation pertinent to the issue. Presenting both sides helps IRS personnel understand the issue and relevant authorities more quickly. And you must also notify the Associate Counsel if you become aware of relevant pending legislation after submitting this request;
- Statement that none of the tax returns, or the tax returns of related parties that might be affected by the outcome, are under audit, before appeals, or before a federal court. You must also notify the Associate Counsel if an audit is started after submitting the request;
- Statement that no PLR was previously requested by the owner or ruled upon for the same or similar issue, nor is a PLR pending on the same or similar issue. You must also notify the Associate Counsel if another PLR is submitted after submitting this request;
- Identification of any information that you want deleted from the copy provided to the public, since PLRs are made available to the public;
- A statement, under penalties of perjury, that the information provided contains all the relevant facts relating to the request, and that such facts are true, correct, and complete to the best of your knowledge and belief. This statement must be signed by the owner, not a representative;
- The signature, dated, of the owner or owner’s representative. If your representative signs the request, be sure to include a completed Form 2848, Power of Attorney and Declaration of Representation;
- To help make sure your request is complete, the IRS provides a checksheet in Revenue Procedure 2018-1, which should also be completed and submitted with the request.
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. 2018-1, §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. 2018-1, §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. 2018-1, §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.