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Firm Offers Alternatives to Increased User Fees for Letter Rulings

MAR. 1, 2021

Firm Offers Alternatives to Increased User Fees for Letter Rulings

DATED MAR. 1, 2021
DOCUMENT ATTRIBUTES
  • Authors
    Mazawey, Louis T.
  • Institutional Authors
    Groom Law Group
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-11097
  • Tax Analysts Electronic Citation
    2021 TNTF 50-22

March 1, 2021

Internal Revenue Service
Office of Chief Counsel
Washington, DC 20224

Attn: CC.PLR.userfee.comments@irscounsel.treas.gov

Re: User Fees for Private Letter Rulings

Dear Sir/Madam:

We appreciate the opportunity to comment on the above-referenced topic. We are concerned with the recent increase for most private letter rulings (“PLRs”) to $38,000, which we see as a major deterrent to taxpayers who want the certainty that a PLR provides. We would appreciate your considering the following recommendations, which generally reflect the views of many of my colleagues here at the firm (including Katie Amin, Liz Dold, Chris Keller, and David Powell).

Concerns 

The opportunity to obtain a PLR is extremely valuable to taxpayers. As long-time participants in the PLR process, we believe it is a critical part of the service that IRS provides taxpayers and its use should be encouraged. This is especially true where significant IRS guidance has not been issued.

There are numerous areas of tax law, including many where the relevant Code provisions are longstanding, where significant guidance is sorely needed. In recent years, the guidance process has been dominated by recently enacted legislation, thus “crowding out” older projects that ultimately drop off the “guidance priority” list — if they even made it on the list in the first instance.

In our experience, the PLR process is most utilized in areas where official guidance is severely limited and the stakes are very high. By definition, any transaction or issue that risks the tax-qualification of a retirement plan involves high stakes for the employer and its employees. In addition, many of the rulings we have sought in recent years involve provisions that impose draconian excise taxes on employers — such as the 50% excise tax on pension reversions (sec. 4980), and the 100% excise tax on certain funded welfare plan transactions (sec. 4976). In these areas, responsible taxpayers may be unwilling to proceed without a PLR even though the risk of an unfavorable outcome may appear relatively small.

The IRS' request for comments expressly recognizes the “relative complexity” of the PLR requests it has received in recent years. Admittedly, as Code section 7528 contemplates, responding to these requests may consume substantial time of the responsible IRS attorneys. We respectfully suggest, however, that it is inappropriate to burden taxpayers with dramatically higher user fees where the PLR falls in an area where the IRS has not issued significant guidance. Indeed, it is precisely in these areas where the IRS should be most willing to assist taxpayers who seek certainty on complex issues.

We are concerned that setting the PLR user fee too high will have the unfortunate effect of discouraging taxpayers from seeking PLRs at all. As a result, taxpayers may proceed to engage in complex transactions and play the audit lottery — or may simply not take any action. Such inaction may well have unfavorable economic effects — such as locking in surplus assets which accumulate in a tax-deferred solution, such as Code section 401(h)/voluntary employee beneficiary association (“VEBA”) accounts — instead of being used more efficiently to provide employee benefits.

Finally, the current high fee for filing a request for a PLR already serves as a substantial impediment to smaller employers and nonprofit organizations obtaining the tax guidance they need. Increasing the fee will only make that worse. Tax guidance should not be available to only large corporations. In this regard, we suggest that the substantially reduced user fees under Rev. Proc. 2021-1 be available to taxpayers with gross incomes under $10 million and to all tax-exempt organizations.

Recommendations 

(1) Lower Fee Where Guidance is Lacking — We respectfully submit that the IRS should set lower user fees for PLRs in areas where published guidance is lacking — even though handling them may involve additional work for Chief Counsel attorneys. Quite simply, this would be fair to taxpayers. For example, where the IRS has no comprehensive published regulations in an area, the fee should be 50% of the otherwise applicable fee. Similarly, a lower fee should apply on plan qualification matters where an IRS determination letter is not available.

(2) Rule While Guidance is in Development — The IRS should be more willing to rule on transactions pending the development of published guidance. While we recognize that published guidance is highly desirable, there have been many cases where that guidance takes many years, or never materializes. Meanwhile, taxpayers have been frozen in their tracks — sometimes indefinitely. We believe principles of sound tax administration support the issuance of a PLR whenever possible (instead of justifying a “no rule” position). We encourage the IRS to revisit and change its “no rule” positions where no recent guidance is available — for example, in the health and welfare area, areas such as Code sections 105(h) and 125 and the Section 4976 excise tax. If a PLR is later believed to have been “wrong,” the IRS may revoke it on a prospective basis if it wishes to do so.

We understand the objective of the PLR process was to provide certainty to taxpayers and the IRS on a “non-precedential” basis so that taxpayers may proceed with full knowledge of the tax consequences. The Code itself (sec. 6110(k)(3)) makes it clear that one taxpayer may not rely on a PLR issued to another taxpayer. We understand that practitioners may rely on PLRs when advising their clients, but they nevertheless proceed at their peril. The IRS could issue guidance reinforcing that position.

(3) Impose Modest Charge for Pre-submission Conferences — We have frequently utilized the opportunity to have a pre-submission conference to help assess whether a PLR should be sought. These are often useful and enable taxpayers and the IRS to conserve resources. The IRS may want to impose a modest fee to help offset the cost of lower user fees for PLRs. For example, $10,000 would be a reasonable fee — and it could be offset against the full fee if a PLR is later sought. In this regard, we also recommend that (whenever possible) IRS assign a PLR request to the same attorney(s) involved in the pre-submission conference — this should enhance the value of the process for taxpayers and the IRS.

(4) Issue Rulings in Some Areas Without Extensive Written Responses — One of the reasons that PLRs have become used as unofficial tax guidance over the years is that they are often the only places that extensive analysis of the law in an area may be found. While it may not be appropriate on all tax subjects, if the IRS were to offer shorter PLRs that merely stated that, based on the information provided, the IRS agrees (or disagrees) with the rulings requested, there would be less danger that other taxpayers would inappropriately interpret the IRS's writings, the IRS would need less resources to make a ruling, and the fee should be less. As you may know, some other countries issue tax rulings in this manner.

* * *

We hope you find these recommendations helpful. We would be pleased to discuss them, or any other issues affecting the PLR process, with you at your convenience.

Sincerely,

Louis T. Mazawey
Groom Law Group, Chartered
Washington, DC

DOCUMENT ATTRIBUTES
  • Authors
    Mazawey, Louis T.
  • Institutional Authors
    Groom Law Group
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2021-11097
  • Tax Analysts Electronic Citation
    2021 TNTF 50-22
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