The Basics Of IRS Private Letter Rulings

So you are an investor with a particularly unique set of circumstances. To minimize risk, you’d like IRS guidance on the nuances of a planned investment transaction before you proceed. The good news is that there is an avenue for asking your question and receiving a cohesive response.

As an investor, you should be familiar with Private Letter Rulings (PLR) issued by the Internal Revenue Service. While many investors will never seek a PLR themselves, they will often rely on other rulings for guidance when conducting their own exchange.

A Private Letter Ruling is a written statement issued by the IRS in response to a taxpayer’s formal request for guidance. The PLR interprets and applies tax laws to a specific set of circumstances.

Given the potential complexity of 1031 exchanges, it is not difficult to understand why so many investors seek out PLRs for their proposed transactions. When a PLR is issued, its holdings are binding on both the IRS and the taxpayer who requested the ruling, but no one else. This means that another investor/taxpayer can look to existing PLRs for guidance, but cannot rely on them to defend or litigate his or her own exchange should it be challenged by the IRS.

If you want to obtain your own PLR, the current procedures to do so are set forth in Revenue Procedure 2016-1. There is a fee for requesting a PLR, too, and the current schedule can be found in Appendix A of Revenue Procedure 2016-1.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.