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STATE BAR OF MICHIGAN SECTION OF TAXATION, FEDERAL INCOME TAX COMMITTEE: NUTS AND BOLTS OF OBTAINING A PRIVATE LETTER RULING
JANUARY 15, 2015
January 15, 2015
TODAY’S PRESENTER
tax credit projects, and financial products taxation. Mr. Combs also represents clients in connection with tax legislation matters, including drafting legislation and lobbying activities. In addition, he has extensive experience obtaining private letter rulings from the Internal Revenue Service and representing taxpayers in federal income tax audits.
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James H. Combs, J.D., PartnerTax Practice Group Leader
Honigman Miller Schwartz and Cohn LLP
Education:University of Texas at
Austin School of Law, J.D. - cum laude
Williams College, B.A. - Political Economy
Bar AdmissionsMichigan | Texas
Member:ABA Tax Section
State Bar of Michigan, Tax Section
Mr. Combs concentrates his practice on corporate taxation, mergers and acquisitions,
TODAY’S PRESENTATION What is a PLR?
Determining whether a PLR is needed
Determining whether a PLR can be obtained
Contacting the IRS
Drafting the PLR request
Submitting the PLR request
Obtaining the PLR
Obtaining a supplemental PLR
Questions and wrap-up
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WHAT IS A PLR?
A PLR is a tax ruling that a taxpayer can request from the IRS
The IRS has provided the following description:A “letter ruling” is a written determination issued to a taxpayer by an Associate office in response to the taxpayer’s written inquiry, filed prior to the filing of returns or reports that are required by the tax laws, about its status for tax purposes or the tax effects of its acts or transactions. A letter ruling interprets the tax laws and applies them to the taxpayer’s specific set of facts. A letter ruling is issued when appropriate in the interest of sound tax administration.
IRS also issues other types of written guidance such as determination letters, closing agreements and information letters
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Source: Section 2.01 of Revenue Procedure 2015-1.
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IS A PLR NECESSARY?
Is the law unclear? Is a tax opinion insufficient based on, e.g.,
the potential tax liability? Is it market practice to obtain a PLR for the
particular type of transaction? Is a PLR needed for desired result?
IRS ruling needed for particular fact pattern Late S corporation election Inadvertent termination of S corporation status “9100” relief for late elections
IS A PLR NECESSARY?
Current user fees are set forth in Rev Proc 2015-1 A PLR can be expensive - $28,300 after February 1, 2015 A reduced user fee applies to taxpayers with specified
gross income levels and to specified types of PLRs Accounting/legal costs for the preparation Assembling required information Client resources
In the case of an entity, is there an officer or other person who can help develop the necessary facts?
Client attention to the PLR draft Necessary documentation
Timing for the ruling and timing of the transaction
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IS A PLR AVAILABLE?
Annual IRS Revenue Procedure for rulings Revenue Procedure 2015-1 is the IRS’s published
guidance on the areas in which it will rule It also sets forth some general areas in which the IRS
ordinarily will not rule Note: the IRS will not rule on a hypothetical
transaction
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IS A PLR AVAILABLE?
Annual IRS Revenue Procedure for “no-rule” areas Revenue Procedure 2015-3 is the IRS’s published
guidance on the areas in which it will not rulePractice tip: Always check the revenue procedure for
changes in IRS ruling policy. In 2013, the IRS imposed “no-rule” areas under Section 355 in Rev. Proc. 2013-3. Press reports of the very significant change did not show up for several weeks after the revenue procedure was published. So, always check the new revenue procedure for the IRS’s current ruling policy
Other guidance issued during the year The IRS may update the areas in which it will not rule See, e.g., Revenue Procedure 2013-32 (Section 355
rulings further restricted)
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IS A PLR AVAILABLE?
It can be helpful to review recently issued PLRs Has the IRS recently released copies of PLRs
involving the taxpayer’s issue? What types of representations were in the PLRs?
Can the taxpayer make the same or similar representations?
What types of rulings were in the PLR? Do the rulings given address the taxpayer’s specific issue?
Were there specific items on which the IRS explicitly did not rule?
Can give the practitioner additional insight into how the IRS has been ruling on particular issues
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CONTACTING THE IRS
A recommended next step is to contact the IRS directly to determine whether the taxpayer’s issue is one on which the IRS would consider a PLR request Even if the issue is not specifically described in
the no-rule Revenue Procedure, the IRS can decline to issue PLRs in the interest of sound tax administration This may include on account of resource constraints, or
on other grounds warranted by the facts and circumstances of a particular case
Early contact with the IRS, rather than simply submitting the PLR request, can avoid an undesired surprise if the IRS is not willing to rule on an issue, e.g., on policy grounds
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CONTACTING THE IRS
Publicly available resources provide contact information for the IRS Rev Proc 2015-1 has contact numbers The Office of Chief Counsel Telephone directory
lists IRS personnel and contact information by Code section
Determine which office of the Associate Chief Counsel at the IRS has responsibility for the issue (e.g., Corporate or Passthroughs and Special Industries)
Contact the IRS to discuss the issue This can be done without revealing the client’s name
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CONTACTING THE IRS
IRS attorneys are typically available to discuss the issue Contacting the IRS provides the opportunity to
learn more about the IRS’s informal, non-binding views on the subject issue
One can also get the IRS’s reaction to any proposed structures and whether there are any aspects that they see as problematic
It is also possible to get a sense of how long PLRs are taking to process, which may be relevant to the timing of the transaction
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PRE-SUBMISSION CONFERENCE
In some cases, desired by IRS and taxpayer An in-person or telephonic meeting in which
any issues that may have been flagged during the initial contacts with the IRS can be discussed in greater depth The taxpayer is identified in connection with the
pre-submission conference IRS Form 2848 is needed
Taxpayer’s representative may prepare a memorandum summarizing the proposed transaction and outlining why the IRS should adopt a particular position
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PRE-SUBMISSION CONFERENCE
Offers the IRS and the taxpayer the opportunity to, among other things: Narrow the issues that will be addressed in the
PLR, to determine whether aspects of the transaction structure should be altered, and
Determine whether particular tax analysis should be included in the PLR request
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DRAFTING THE PLR REQUEST
Once it has been determined that the IRS will entertain a PLR request and any pre-submission conference has taken place, the taxpayer’s representative can prepare to draft the PLR request itself.
Revenue Procedure 2015-1 not only describes the situations in which the IRS ordinarily will rule, it also provides information on how the PLR request should be drafted.
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DRAFTING THE PLR REQUEST
General format might look like the following:
See Appendix B of Revenue Procedure 2015-1. It is possible to locate PLR request samples
online.
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I. Introduction
II. Statement of Facts
III. Required Representations
IV. Ruling(s) Requested
V. Statement of Law and Analysis
VI. Procedural Matters
Exhibits (including documents such as contracts relevant to the transaction)
DRAFTING THE PLR REQUEST
It is typical to identify in a cover letter (or the PLR request itself) IRS personnel with whom the tax practitioner has had discussions in connection with the ruling.
It is often helpful to have these IRS attorneys process the PLR request because of their familiarity with the background on the issue.
However, Revenue Procedure 2015-1 notes that the request itself may not be assigned to the IRS attorneys who participated in a pre-submission conference. This may be on account of workload issues or for
other reasons.17
THINGS TO CHECK
The PLR request itself is complete, including all of the procedural statements. If expedited treatment is desired, comply with the
requirements for requesting such treatment.
Exhibits are included where required or relevant. A penalties of perjury statement signed by the
taxpayer is included. A deletions statement is included.
A deletions copy may be prepared indicated all deletions desired, although IRS has indicated that including such a copy is not necessary.
Include the relevant user fee. Complete the required checklist from Rev Proc 2015-1,
which is included with the submission.
SUBMITTING THE PLR REQUEST
The PLR request may be mailed to the main submission address.
On occasion, there have been IRS deadlines due to ruling moratoriums and it has been advisable, out of an abundance of caution, to have someone take the PLR request directly to the IRS address and get a stamped acknowledgement of timely receipt.
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OBTAINING THE RULING
IRS will formally respond within several weeks A docket attorney will be the primary contact with
the taxpayer’s representative This docket attorney will review the PLR request
and contact the taxpayer’s representative to discuss the request. The discussions may include requests for additional
information to complete the request, expected timing for review of the PLR request and issuance of the ruling, availability of expedited treatment, and whether a “two-part ruling” will be requested.
Practice tip: A two-part ruling, where the taxpayer’s representative completes the initial draft of the PLR, can help speed up the issuance of the ruling by freeing the IRS docket attorney from this task.
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OBTAINING THE RULING
IRS may request additional information or additional tax analysis from the taxpayer’s representative Updated information and tax analysis can be discussed
with the IRS, but should be submitted in writing Be mindful of applicable 21-day response deadlines in
the Revenue Procedure Practice tip: An extension may be granted by the IRS,
so if it is expected that the deadline may be difficult to meet, confirm an extension with the IRS in writing
In some cases, the taxpayer may decide to withdraw the PLR request (with a forfeiture of the user fee) or the IRS may decline to rule (in which case the user fee may be refundable).
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OBTAINING THE RULING
The taxpayer’s representative may have phone calls with the IRS to discuss relevant issues and may submit additional information to the IRS. For example, the transaction may have aspects
that it is not clear that the IRS will rule on. If the determination is subsequently made to
omit these from the transaction structure, the IRS should be contacted.
Practice tip: Confirm changes in facts discussed with the IRS in writing with the IRS to “build the file” on what has been discussed with the IRS. This can be very helpful down the road if it’s necessary to revisit the rulings.
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OBTAINING THE RULING
If the IRS may not rule on the issue, a taxpayer has the opportunity for a conference of right with the IRS (and possibly additional conferences at the IRS’s discretion).
Once the taxpayer’s representative and the IRS have worked through submissions of additional information and tax analysis, and discussed and resolved any tax issues presented in the PLR request, the IRS (or the taxpayer’s representative in a two-part request) will prepare the initial draft of the ruling.
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OBTAINING THE RULING
IRS will generally fax the taxpayer’s representative the draft ruling
This draft ruling will set forth: Factual information regarding the subject
transaction Legends are used for taxpayer information that is
redacted: Date 1 = January 1, 2015 Taxpayer = Acme Manufacturing State = Michigan
The description of the facts will be a condensed version of the facts submitted in the PLR request
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OBTAINING THE RULING
The draft ruling will also contain: Representations made by the taxpayer that are
relevant to the rulings If there are issues that the IRS has under study, then
additional representations may be made with respect to those issues For example, the IRS has been studying certain
issues under Section 355 and may include representations related to these issues
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OBTAINING THE RULING
The draft ruling will also contain: Standard (and, perhaps, other) limitations in the
PLR Standard limitations include that only the taxpayer can
rely on the PLR and that no rulings are given on tax matters other than those ruled on in the PLR
In some cases, there are limitations relevant to the particular type of transaction For example, the IRS does not rule on certain
aspects of Section 355
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OBTAINING THE RULING
Draft ruling will not contain the rulings to be given The PLR request (and, possibly, a supplemental
letter) will set forth the actual rulings being requested
The rulings that the IRS intends to give and their wording should be discussed with the IRS docket attorney in connection with the review of the draft ruling
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OBTAINING THE RULING
Taxpayer will have the opportunity to comment on the draft As with any draft, the taxpayer’s representative
may have changes to request These can be as simple as requesting changes to the
legended information (e.g., to correct a date or a number of shares) or more complex (e.g., working out modifications to representations to make sure that such representations are accurate)
Remember: The taxpayer can rely on the PLR and will file it with the tax return for the relevant year. But! On audit, the IRS field agent can review the PLR to ensure that the facts and representations therein are accurate
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OBTAINING THE RULING
Once the IRS and the taxpayer’s representative have worked out all revisions, the IRS will be in a position to issue the ruling
A draft ruling, containing the actual rulings to be given, may be received once all comments are worked out with the IRS
An official ruling subsequently will be mailed to the taxpayer
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OBTAINING A SUPPLEMENTAL RULING
In some cases, there are factual changes that occur after the IRS has issued the initial PLR, but before (or after) the transaction occurs
The taxpayer can request a “supplemental” PLR in order to reconfirm the rulings in the initial PLR in spite of the factual changes or to obtain new rulings on the changed facts
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OBTAINING A SUPPLEMENTAL RULING
Procedures for obtaining a supplemental ruling are generally the same as for obtaining the initial PLR.
If the taxpayer is considering applying for a supplemental PLR, it is helpful to discuss the issues with the IRS firstPractice tip: Discussing the proposed
supplemental ruling with the IRS attorneys who were involved in the initial ruling is helpful.
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