What is a Private Letter Ruling?

Mary McMahon
Mary McMahon

A private letter ruling (PLR) is a document sent by the US Internal Revenue Service (IRS) in response to a question from a taxpayer. As long as the taxpayer words the question properly and provides complete and accurate information in the request for a private letter ruling, the ruling can be considered accurate and binding on that situation. Private letter rulings are not binding for other taxpayers in other situations, however, and the IRS is not required to apply one private letter ruling to another taxpayer.

Woman posing
Woman posing

People send requests for private letter rulings when they would like to receive an explanation or clarification of the tax code before they do something, so that they can be assured that they are within the bounds of the law. Someone may request a private letter ruling before embarking on a particular transaction to make sure it is done properly, for instance. Taxpayers can also request rulings about matters on their tax returns before they file them, to confirm that the tax return will be filled out correctly.

The taxpayer must completely disclose all relevant information in the request. If he or she does not, the ruling will not be valid. An IRS representative reviews it and issues a private letter ruling on the matter. The ruling does not provide advice or recommendations, only information. Thus, the IRS might inform someone that something cannot be claimed on a tax return, but will not provide information about other ways to reduce tax liability.

The private letter ruling is specific to the taxpayer and the situation as it is described. Sometimes, the IRS may take these written decisions, redact identifying information, and publish them as revenue rulings. When published as a revenue ruling, a private letter ruling becomes binding on the IRS and other taxpayers.

Databases of redacted private letter rulings and revenue rulings can be found online at locations like the IRS website for the benefit of taxpayers. Before requesting a ruling, it can be helpful to look at examples of previous rulings. A ruling may answer a tax question or provide information which can be used to draft a more complete and accurate request. It is important to be aware when looking at a private letter ruling that even if a taxpayer is in the exact same situation described, that ruling is not binding on the IRS, and the IRS can treat a different taxpayer differently.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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