(817) 470-2910 rbassi@bassifinancial.com

By Ian Berger, JD
IRA Analyst

Like most everything else these days, the price for receiving an IRS private letter ruling (PLR) has recently gone up.

A person will request a PLR to receive the IRS’s blessing that a specific tax transaction won’t violate the tax code or IRS regulations. A PLR is specific to the particular tax situation of the person requesting it. This means that PLRs shouldn’t be relied on by anyone other than that person. Practically, however, other taxpayers with similar circumstances often will rely on a published PLR.

There are three problems with requesting a PLR. First, it often takes the IRS a long time – sometimes nine months or longer – to issue a ruling. By that time, it may be too late for the PLR to provide any meaningful relief. Second, PLRs are expensive. As of July 1, 2022, the filing fee alone for requesting a PLR on IRA matters increased from $10,000 to $12,500. And, an attorney or tax expert will charge thousands of dollars more to do the actual filing for you. Lastly, there’s no guarantee that the IRS will rule in your favor.

So, unless you’re faced with a very large tax matter and have the funds to pay the cost, a PLR probably isn’t a good option. Fortunately, with some common retirement account transactions, there are ways to avoid having to go to the IRS for a PLR.

One way is to make sure your IRA or company plan distribution is moved via a direct rollover or transfer rather than a 60-day rollover. With a 60-day rollover, there is always the risk that the deadline will be missed.

If that happens, the IRS will sometimes forgive the violation, but you must request a PLR to get relief. Since 2016, the IRS has also offered self-certification as a free alternative to a PLR for fixing a late rollover. Self-certification only requires you to provide a letter to the receiving custodian indicating that you missed the 60-day deadline due to one of 12 specified reasons. Those reasons include errors by the custodian, losing a rollover check, postal error or serious illness of you or a family member. But self-certification won’t work if you don’t meet one of those 12 reasons. That’s why we always recommend a direct rollover or transfer instead of a 60-day rollover.

A second way to avoid a PLR is to name a person (rather than a trust or estate) as your IRA beneficiary directly on a beneficiary form. Although there are good reasons to name a trust as IRA beneficiary, oftentimes a trust is named without a legitimate purpose. When a trust or estate is designated, it often becomes necessary to request a PLR to allow a surviving spouse to roll over the account owner’s funds to her own IRA or to allow the funds to be transferred to inherited IRAs set up for non-spouse beneficiaries. The need for a PLR in either situation can be avoided by simply naming the beneficiary directly.

https://www.irahelp.com/slottreport/sidestepping-new-irs-private-letter-ruling-fees