The National Association of Bond Lawyers this week gained an influential supporter in its effort to persuade the Internal Revenue Service to roll back its fee for private letter rulings.
Taxpayer Advocate Erin Collins said in a Tuesday
Collins is urging the public to send comments to the Office of Chief Counsel before the March 1 end of the
In her blog, Collins said the Taxpayer Advocate Service has been vocal about this issue for the last decade. The TAS is an independent organization within the IRS charged with ensuring the fair treatment of taxpayers and providing help in resolving conflicts with the IRS.
“As we discussed in our Annual Report to Congress in 2015, 2017, and 2018, having the IRS charge for tax-related services is problematic,” Collins wrote.
That’s consistent with the argument made by the National Association of Bond Lawyers that the increase in private letter ruling fees has discouraged taxpayers from seeking guidance on compliance.
A private letter ruling represents the IRS' interpretation of tax law as applied to the facts presented by the taxpayer requesting the ruling. PLRs are technically applicable only to the specific situations they address, but they are influential beyond that because tax lawyers often look to them for guidance on the IRS' thinking.
In late 2019 NABL wrote to IRS Commissioner Charles P. Rettig with a request for 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.
Last month the IRS announced an $8,000 increase in the cost of private letter rulings involving tax-advantaged bonds issued by state and local governments to $38,000. The announcement in IRS Bulletin 2021-1 represented an 26.7% across-the-board increase in PLR fees.
The IRS Office of Chief Counsel said last month it had 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 should not be selling rights only to those willing or able to pay,” Collins wrote on Tuesday. “If some taxpayers are able to pay and others are not, then a fee may erode the right to a fair and just tax system. IRS services generally help people pay taxes, thereby raising government revenue and avoiding tax enforcement costs. If an IRS user fee discourages people from using these services, it could be very costly — reducing voluntary tax compliance or increasing tax enforcement costs.”
NABL Tax Committee Chair Christie Martin of Mintz Levin in Boston said in an email Wednesday her committee plans to file a comment with the chief counsel prior to the March 1 deadline.
“We continue to believe that the significant size of the user fee, even before the recent increase, has been detrimental to the private letter ruling process, and accordingly, tax administration, in that the significant increase in the user fee over the years has resulted in a meaningful drop in the number of PLRs issued to state and local governments,” Martin said.
The Taxpayer Advocate wrote that the chief counsel has acknowledged that PLRs help avoid time-consuming back-end compliance activity. They also help the IRS identify areas that require further explanation or guidance.
“The IRS’s previous PLR fee increases prompted taxpayers to stop submitting easy PLR requests, and the cost of processing the fewer complicated ones that remained has driven up the average cost of each PLR,” Collins wrote. “Because the fee is based on the IRS’s costs, the latest increase is likely to perpetuate a vicious cycle in which higher fees reduce the number of PLR requests, driving up the average cost per request and leading to still higher fees.”
