IRS fee increases deter private letter ruling requests

Fee increases may be discouraging taxpayers from seeking private letter rulings from the Internal Revenue Service to resolve their questions ahead of filing, according to a new report.

The report, released Thursday by the National Taxpayers Union Foundation, found that over the past decade, the IRS has doubled the fees for requesting a PLR, and that may be keeping taxpayers from seeking pre-filing tax guidance as the number of such requests declines. However, the fees have remained the same for the past four years, yet there were still declines in the number of requests.

PLRs provide legally binding assurance from the IRS for the taxpayer who requested the ruling, improving compliance and minimizing potential disputes and penalties for violations. A request can be filed either before the transaction occurs or before filing a tax return. To get a PLR, taxpayers need to send a written request to the IRS and pay the fee, but the costs have been going up each year. This year, the fees range from $3,000 for taxpayers with gross income below $250,000, to $8,500 for those with gross incomes between $250,000 and less than $1 million, to $38,000 for taxpayers with gross incomes above $1 million. That's up from $2,000, $5,000 and $19,000, respectively, in 2014. However, the fees have remained the same since 2021.

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The annual growth rate in PLR ruling requests has been trending downward in recent years, down 16.82% in 2020, 2.25% in 2021, 24.14% in 2022, and 27.27% last year.

The report theorizes that the fees over the course of the decade are at least partly to blame, even though they've held steady for the past four years. 

In 2012, the fees for PLR filing increased for all income brackets, and that led to a 7.54% decrease in requests for rulings.

 "Three years later, after another fee increase for all income brackets, the requests for filings dropped significantly by 65.80% in 2015," according to the report, written by NTUF vice president of research Demian Brady and associate policy analyst Yasmeen Kallash-Kyler. "Following a reevaluation by the IRS in 2017, fees were increased again across all income brackets, resulting in a 61.29% decrease in requests for rulings. Finally, in 2021, the continuation of this trend led to a 2.25% decrease in requests."

They see a negative correlation between fee increases and the number of requests for rulings. In most years when fees increased, the number of requests for rulings decreased, suggesting that higher fees may be discouraging individuals and entities from seeking PLRs.