Requesting a Private Letter Ruling on Uncertain Tax Positions? You may have to Wait for Guidance Instead
Back on September 24, 2010, the Internal Revenue Service released the final Schedule UTP and associated guidance regarding the disclosure of uncertain tax positions (UTP) by corporations. At the same time, the IRS released a bevy of guidance documents pertaining to Schedule UTP:
- Announcement 2010-75 (which explained revisions made to the final schedule from the draft);
- Announcement 2010-76 (which expands the Services “policy of restraint” to abstain from seeking legal opinions and other documents relating to UTPs); and
- an internal field directive outlining the agencys plan for treatment of UTPs.
So does this full guidance initiative on Schedule UTP mean that the IRS will be hesitant to issue private letter rulings on uncertain tax positions?
Not at all, according to a senior counsel in the IRS Office of Associate Chief Counsel (Corporate). While discussing business regulations at a Practising Law Institute conference on tax strategies for corporate acquisitions in New York on October 21, 2010, IRS Senior Counsel Russell P. Subin stated that the Service will continue to issue private letter rulings applying an area of law even when it is involved in a guidance project that would address that law, so long as the current law is stable.
"In general, where current law is stable, we’re going to answer questions based on current law, notwithstanding the fact that we have a reg project open," echoed Subins boss William Alexander, IRS Associate Chief Counsel (Corporate). "But we will make you no promises about whether we’re going to work on your ruling request or on finalizing that reg first."
That final rejoinder from Alexander “ that work on guidance documents may take precedence over letter rulings “ appears to be the new mantra within the walls of the IRS on Pennsylvania Avenue.
A recent report from the Department of Treasurys Inspector General for Tax Administration found that private letter rulings issued by lawyers at the IRS take too long to issue and are often redundant. Although the target deadline for responding to ruling requests is 120 days, the IG found that IRS lawyers missed that target an astounding 77% of the time. The IG reviewed responses to 65 sample letters and found 50 took longer than four months to promulgate, and one took almost 10 years.
The IG report stated:
Our review showed that Chief Counsel is not monitoring available information to consider whether published guidance should be issued on certain tax issues[.] Each of these issues could represent a strong need for published guidance, which would be available for all taxpayers.
In a response letter to the IG report, IRS Deputy Chief Counsel Clarissa Potter agreed with the findings: “[W]e should identify common issues in letter ruling requests, and when possible and beneficial, issue published guidance.”
The agencys position means that when contemplating reporting of UTPs, companies may have to rely on the published IRS guidance rather than seeking definitive guidance from the Service. The often confusing nature of IRS guidance documents, however, means that companies will need strong legal advice on UTP reporting guidelines. Luckily for companies contemplating UTP reporting issues, our phone lines are open.