Why an IRS private letter ruling may not protect you

From an NTEA member My company found an older private letter ruling that determined Internal Revenue Code (IRC) Section 4051 Federal Excise Tax (FET) did not apply to the sale of a truck that is similar to the trucks we sell. If my company gets audited by the Internal Revenue Service (IRS), will this private letter ruling protect my company from the IRS assessing FET on the truck sales? No, unfortunately, your company is not entitled to rely on a private letter ruling issued to another company. Only the entity to which the private letter ruling is issued may rely on it. The IRS publishes its private letter rulings, and these rulings can provide helpful guidance for predicting the IRS’s FET tax treatment for the sale of similar trucks under similar circumstances. However, the IRS is not required to reach the same conclusion it did in a prior private letter ruling, even if your trucks and circumstances are substantially similar to those discussed in the private letter ruling. Note: If the ruling is a revenue ruling, rather than a private letter ruling, then you generally would be entitled to rely on the ruling if the facts and circumstances regarding the trucks you sell are substantially similar to those in the revenue ruling. (Your ability to rely on such a revenue ruling would continue unless and until the IRS subsequently revoked or modified the revenue ruling.) Also, you note that the private letter ruling is older. Therefore, you should be aware that the applicable statutory or regulatory provision in the ruling may have changed since the ruling was issued, and any such change may affect the IRS’s conclusion. Similarly, you should be aware that the prior ruling subsequently could have been modified or revoked by the IRS, or the IRS could have issued a more recent ruling at odds with the rationale used in the older ruling. In addition, you should be aware that the IRS, in reaching its decision in the prior ruling, may have had access to information not included in the published ruling, but which could distinguish the trucks you sell from the trucks at issue in the prior ruling. A taxpayer does have the option, in most cases, to file its own request for a private letter ruling. If a taxpayer chooses to do so, it can make the IRS aware of the prior private letter ruling (even though the IRS will not be bound by it) and can argue that the rationale in the prior ruling should similarly apply to the taxpayer’s sales. If the IRS provides a taxpayer with its own private letter ruling, which determines the article at issue is not subject to FET, then that taxpayer generally would able to rely on that ruling unless and until the IRS revoked or modified it. However, there are some drawbacks to requesting a private letter ruling. For example, private letter rulings are expensive, with a filing fee of $38,000 (unless you qualify for a reduced user fee, based on your gross income, as defined in IRS Revenue Procedure 2024-1). Also, preparing a private letter ruling is not simple, as there are a lot of procedural requirements and factual information a taxpayer must submit; therefore, you may need the assistance of an attorney or other tax professional, which would further increase the cost of a private letter ruling request. In addition, you should always discuss with your tax advisor potential adverse consequences before seeking a private letter ruling request, because filing a private letter ruling request will bring your business generally, and your prior and current sales of the subject truck specifically, to the attention of the IRS. As a final example, the IRS is not required to issue a private letter ruling within a specific amount of time; therefore, the timing for receipt of the private letter ruling is uncertain. Therefore, although a published private letter ruling issued to another taxpayer can provide helpful guidance, it is important to understand (1) the limitations of using a third-party private letter ruling to predict whether the IRS will assess FET on the sale of your trucks, and (2) the pros and cons of seeking your own private letter ruling. Find more FET articles at ntea.com/fetresources.

Why an IRS private letter ruling may not protect you

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