As everyone is generally aware, Congress and state legislatures are in session and passing new laws.  Unfortunately, many of them are laws dealing with increasing taxes, directly or indirectly.  In other words, the statutes governing taxes at the federal, state and local levels are always in flux.


Tax laws are also changing, practically every day, through court decisions, and actions taken by the IRS through its interpretations of the existing statutes.

Just as an example, on this past Friday, April 29, 2011, the IRS issued 49 private letter rulings.  Private letter rulings (PLRs) are the IRS’ response to formal requests for interpretations of various sections of the Internal Revenue Code that involve some specific question a taxpayer may have with regard to the taxpayer’s own factual circumstances.  In theory, a PLR cannot be used as support for any taxpayer other than the one who has submitted the request for the PLR, and only for the specific set of facts that are presented in the request for the PLR.

PLRs are not the “law” as it relates to tax matters. However, in responding to the specific requests, the IRS cites the applicable code provisions, tax regulations, and sometimes even case law, in answering the questions presented by the taxpayer, and quite often provides a clear picture of the IRS’ position with respect to the tax issues involved.  The PLRs are quite instructive in determining what the IRS’ position will be a given situation.  PLRs are quite useful in that regard with respect to tax planning, and in a given week the IRS will issue often dozens of private letter rulings.

Of the 49 PLRs issued this past Friday, 8 of them dealt with Individual Retirement Account (IRA) rollovers.  All 8 of those PLRs dealt with different factual situations where taxpayers were seeking a waiver of the requirement to re-deposit an IRA rollover within 60 days of the date of the withdrawal.  In 7 out of 8 of the cases, the IRS granted the waiver and allowed the rollover to take more than 60 days.

The waivers that were granted by the IRS dealth with errors caused by financial institutions in either distributing the improper amount of funds, errors made in titling accounts, errors in transferring improper amounts, fraudulent activities by financial advisors or finnancial institutions (including the misappropriation of funds by an executive of a financial institutions who went to prison), and imaccurate advice provided by financial advisors.

In PLR 201117042, the IRS confirmed what most tax practitioners already knew, but had never been specifically expressed by the IRS.  IRAs cannot be titled to a revocable trust.  Many PLRs have advised that designating a trust the beneficiary of an IRS is allowable and appropriate, when properly designated.  This PLR specifically acknowledged that transferring ownership of an IRA to a revocable trust constitutes a transfer that will result in the immediate taxation of the entire balance of the IRA – unless you obtain a waiver from the IRS, through a PLR, that is based on facts that show it is not the taxpayer’s “fault” that the transfer occurred.

PLR 201117046 was the only PLR on this date that denied the requested waiver of the 60 day rollover requirement.  In denying the requested waiver, the IRS noted that it was the taxpayer’s “own actions and mistaken knowledge of law that caused the failure” to deposit the rollover within the allowed 60 days.  The taxpayer acknowledged that she thought the rollover period was 90 days rather than the applicable 60 day period.

A PLR is most useful when the amount of potential tax liability is significant, and the facts tend to favor the taxpayer.  It can take a year or two for the IRS to issue a PLR after the request is formally submitted to the IRS.  Supporting documentation must be provided with the request. A request for a PLR is most often completed by experienced certified public accounts (CPAs) and tax attorneys who are quite well versed in the provisions of the Internal Revenue Code, its accompanying regulations, and other tax law precedent.

If you’re curious about how the IRS interprets the Internal Revenue Code, or want to see the often unusual circumstances involving taxpayers, or perhaps if you just have insomnia, you can read the IRS’ current PLRs at its website.

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