IRS raises private letter ruling fee to $38,000

Register now
Vicky Tsilas, a partner at Ballard Spahr in Washington who formerly headed branch 5 in the IRS chief counsel’s office, described the latest fee increase as “crazy.”

Requests by state and local governments for Internal Revenue Service private letter rulings on tax-advantaged bond issuances are facing an $8,000 increase to $38,000.

That’s a result of Monday’s IRS announcement in Bulletin 2021-1 of a 26.7% across-the-board increase in PLR fees, which did not provide an exception for tax-exempt governmental entities despite a request more than a year ago for a reduction in fees.

The IRS Office of Chief Counsel said it conducted a biennial review of the user fees and decided to increase the fees based upon data on the average time for responding to a ruling request and other factors, including average attorney costs and overhead.

The IRS said substantially discounted fees would remain available for most taxpayers whose annual adjusted gross income is below $1 million. The fees start at $275.

The IRS may decide to change the way it calculates the fees in the future, however, as there have been fewer requests for private letter rulings lately.

“The fee increase for higher-income taxpayers is driven by a combination of the costing methodology utilized, a decline in the overall number of rulings issued, and an increase in the relative complexity of the rulings that are requested,” the Office of Chief Counsel said in a statement.

“Cognizant of the fact that increased user fees in recent years may, in part, explain the decline in the overall number of rulings requested, the Office of Chief Counsel is considering whether there are alternative fee structures that could better match the fee charged with the complexity and work involved in issuing the ruling,” the statement also said.

The National Association of Bond Lawyers in late 2019 wrote to IRS Commissioner Charles P. Rettig requesting the fee reduction by pointing out that the number of muni-related letter rulings fell to four in 2018 when the fee rose to $28,300. The NABL letter said there were 16 PLRs in 2008 when the fee was only $11,500.

Vicky Tsilas, a partner at Ballard Spahr in Washington who formerly headed branch 5 in the IRS chief counsel’s office, described the latest fee increase as “crazy.”

“I just looked at it and said, ‘A 26.7% increase? Is that right?” Tsilas said Tuesday. “That’s a lot. Right? Nobody’s going to go in for a PLR.”

Tsilas said that clients generally don’t like to request PLRs even with the fee at $30,000. “I have done very little private letter rulings because it costs a lot to go in,” she said. “It takes several months and, at the end of the day, they also have to pay the legal fees to put together the private letter ruling.”

Rebecca Harrigal, a shareholder at Greenberg Traurig in Philadelphia who is a former director of the Office of Tax Exempt Bonds at the IRS, drafted most of the 2019 NABL letter.

“My understanding is that the IRS is still considering NABL’s request to provide for a reduced user fee for tax-exempt bonds,” Harrigal said Tuesday.

The 2019 NABL letter pleaded for a “significantly lower user fee” without suggesting a specific dollar amount.

Harrigal worked with an ad hoc group of NABL attorneys to make the request. The group included Michael G. Bailey of Foley & Lardner in Chicago; Victoria Ozimek of Bracewell in Austin, Texas; Christie Martin of Mintz Levin in Boston; Johnny Hutchinson of Squire Patton Boggs in Houston; and Richard Moore of Orrick in San Francisco.

Shortly after the NABL letter was sent to the IRS, Bailey told the Bond Buyer that the value of PLRs is that they have “helped to inform the IRS of real-world problems and real-world issues in interpreting the code and the regulations.

Although the private letter rulings have been confidential as to taxpayer information, they are discussed at the NABL seminars and they have been an important part of the dialogue between the IRS and the bond community, according to Bailey.

Contributing: Michael Cohn of Accounting Today

For reprint and licensing requests for this article, click here.
IRS Muni tax exemption Tax practice Washington DC