It began in a parking lot in February 2020. A colleague asked, “Have you ever done a private letter ruling request?” He explained that a new client had an unresolved IRS issue, and their attorneys suggested an IRS private letter ruling (PLR) request to resolve the matter.
“No,” I replied. “But I believe the firm has.”
In four decades as a CPA, I have done some interesting things: preparing expatriate tax returns in South Korea and the Philippines, holding a uranium pellet during a nuclear fuel rod inventory, and making PICPA CPE presentations locally and statewide. But a PLR request? Never. Well, I was about to check off one more item on my tax CPA bucket list.
The Issue and the Process
The business was an LLC that wanted to be taxed as a corporation but had failed to timely file an entity classification election using Form 8832. Revenue Procedure (Rev. Proc.) 2009-41 provides automatic relief for late-filed entity classification elections. Unfortunately, it was already beyond the three-year and 75-day period for taking advantage of the automatic relief.
The only remaining option was to apply for IRC Section 9100 relief via a PLR request. Although not uncommon, this PLR request was not like the others on which our firm had previously worked. As I got underway, I recalled that another CPA I know who had Section 9100 relief experience told me the process was a lot like root canal. All I can say to that is that at least root canal is over in a couple weeks: Section 9100 relief during a pandemic, not so much.
I soon discovered that preparing a Section 9100 relief PLR request was, indeed, tedious and costly. In addition to professional fees, there is an IRS user fee that was $10,900 when I began the process in 2020. (It would increase to $12,600 if the request was filed after Feb. 3, 2021.)
A Section 9100 request asserts that the taxpayer failed to make the applicable tax election due to reasonable cause. The client’s reasonable cause was that its former CPA failed to take the necessary action to satisfy their desire to elect to have the entity taxed as a corporation. The client’s attorney obtained sworn affidavits from client personnel and the CPA.
My task was to write the PLR request for review by the client and their attorney and to execute the filing of the request.
When I set out to learn how to prepare the document, I discovered the files for my firm’s prior PLR requests were not available. I contacted a tax guru CPA friend for advice. He explained that the IRS annually publishes guidelines for PLR requests. When the process began in 2020, it was Rev. Proc. 2020-1; when I finished in January 2021, Rev. Proc. 2021-1 had been published in the first Internal Revenue Bulletin of 2021 and was now applicable. The Rev. Proc. was lengthy, but informative. It included a sample format for a letter ruling request, required checklists to be submitted, and user fee information.
Summer of Discontent
The first draft of the PLR was prepared and reviewed by April 30, 2020, but there was an issue regarding IRS notices. The attorneys suggested requesting tax transcripts. In May, I started multiple unsuccessful attempts to fax Form 4506-T, Request for Transcript of Tax Return, to the IRS. I also mailed a paper copy of the request. With no response by August, the attorney, who had prior IRS work experience, suggested contacting the IRS national office without the transcripts.
Contact, Redo, Wait
Based on the attorney’s suggestion, I consulted Chart 5425 – IRC Code and Subject Matter Directory of the IRS Office of Chief Counsel and contacted a Code Section 7701 attorney. The plan was to discuss the PLR request informally to get a sense of whether it would be approved. I phoned, followed up by email, and finally got a call back in mid-August. I explained the case on a no-name basis, and then kept following up on the status. In January 2021, I was finally advised it was likely our request would be approved. Now, I needed to update the document for the 2021 Rev. Proc. and file it before the user fee increased.
The IRS confirmed receipt of the request. I heard from the IRS in early July, and the IRS attorney requested additional information. We submitted it in late July, and just as this article was going to print I was informed that the request was approved. So, it is wonderful to get good news on what now seems like a pandemic dream. And very distant from that parking lot conversation.
For those who find themselves in a similar quandary, I would say it is imperative to locate and read the most recent IRS Rev. Proc. regarding PLR requests.
It is normally published in January. If possible, it would be extremely helpful to consult with a CPA or attorney who has experience with PLR requests either to get their advice or maybe even ask them to review the request before submitting it.
Barry D. Groebel, CPA, is a senior tax consultant for Herbein + Company Inc. in Reading. He can be reached at firstname.lastname@example.org.