IRS Private Letter Rulings Should Go Out Faster

The Internal Revenue Service’s Office of Chief Counsel should improve the timeliness of the private letter rulings it issues and reduce the number of rulings issued, recommended a new government report.

The IRS chief counsel issues private letter rulings that interpret and apply the tax law to taxpayers’ specific set of facts and advises taxpayers of the tax treatment they can expect from the IRS in the circumstances specified by the ruling.

In the new report, the Treasury Inspector General for Tax Administration determined that the chief counsel office could take additional actions to contact taxpayers on a more timely basis and close their requests for PLRs. Delays in providing private letter rulings can substantially increase taxpayer burden because PLRs are generally needed before the taxpayer files a tax return and could result in a delayed tax return filing or amended returns as well as additional accounting fees.

In addition, the chief counsel office could potentially reduce the number of PLRs requested by issuing more published guidance that would benefit a greater number of taxpayers.

Overall, the report found that the Office of Chief Counsel ensured that the correct PLR user fees were charged to taxpayers. However, the IRS can take additional actions to more timely provide taxpayers with responses to their requests for PLRs. TIGTA determined that chief counsel personnel did not always timely contact taxpayers after case assignment to discuss the taxpayer’s issues. In addition, the PLR cases sampled for review were not always closed by chief counsel personnel in a timely manner. Specifically, 50 of the 65 sampled cases involved an untimely PLR that was issued after the chief counsel’s 120-calendar-day goal (closures ranged between 121 to 3,548 calendar days).

The TIGTA review also showed that the chief counsel is not monitoring the available information to consider whether published guidance should be issued on certain issues. TIGTA determined that some PLR cases closed during fiscal years 2007 through 2009 related to similar issues. Specifically, PLRs were issued to taxpayers more than 150 times for four of the top five most used issue codes during the audit period studied in the report. If the chief counsel issued more published guidance for these tax issues, it might prevent the need for a number of PLRs.

TIGTA recommended that the chief counsel establish and track formal goals that would require chief counsel personnel to issue PLR rulings within an established number of calendar days, develop and implement a review process that would enable chief counsel management to identify delays in both timely contacting taxpayers and closing PLR requests within established time periods, and better document and monitor when taxpayers are initially contacted and the reasons for any delays in closing PLR requests.

TIGTA also recommended that the chief counsel establish a process to annually review issue codes related to PLRs and determine whether published guidance should be issued.

IRS management fully agreed with two of the recommendations in the report and partially agreed with the remaining two recommendations. Management plans to review their procedures to determine what changes are needed to strengthen their ability to identify delays in letter rulings, and reemphasize the importance of file maintenance and management information system requirements.

However, IRS management did not fully agree to establish formal timeliness goals for issuing PLR rulings or agree to specifically establish an annual review process of PLR issue codes to identify the opportunity to issue published guidance.