At What Price Certainty?

The complexity of federal tax law is well known. Oftentimes, questions come up that are not answered clearly in the law. To help taxpayers obtain answers they can rely on, the IRS will issue private letter rulings as to the IRS’ take on a specific question (if on a subject that the IRS will rule on). The IRS will be bound by its ruling (but only as to the requesting taxpayer).

If my memory serves me correctly, once-upon-a-time the IRS did not charge for these rulings. Then, to help offset costs for this “service” the IRS started to charge for them. The user fees have increased significantly over the years.

Per Rev.Proc. 2015-1, the user fee for a private letter ruling is now the astonishing sum of $28,300. One has to seriously doubt whether the IRS has crossed from obtaining an offset to costs to making a significant profit on such requests. Such a high cost also acts as a significant deterrent to taxpayer requests, even as the complexity of the tax law expands each year.

The user fee is reduced to $2,200 for taxpayers with a gross income under $250,000 and $6,500 for gross income between $250,000 to $1 million. Apparently, the politics of regressive income tax rates also applies to user fees. Kind of like having your cable TV bill vary by what your income is – a swell idea!

There are special rates for certain types of rulings that are also lower. For example, Section 9100 relief for late elections will cost less than $28,000 – but lower income taxpayers will pay the same as for a regular private letter ruling. Such fees in effect constitute a penalty for taxpayers that were untimely in making an election and that need a private letter ruling to make a late election.