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Do You Know About IRS Private Letter Rulings?

Do You Know About IRS Private Letter Rulings?

If you are an investor interested in conducting 1031 exchanges, you should be familiar with Private Letter Rulings (PLR) issued by the Internal Revenue Service. While you will likely never seek a PLR yourself, you will often rely on other rulings for guidance when conducting your 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. However, the reach extends no further than that. 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.

Should an investor want to obtain his or her 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.