Private Letter Ruling: When do I Need One?

May 27, 2010 - PRLog -- Most taxpayers will never need  private letter ruling from the Internal Revenue Service ("IRS").  However, for those taxpayers who have a tax issue that is unclear and might involve a significant amount of tax, before the taxpayer takes the intended action, it makes perfect sense for him or her to request an IRS private letter ruling.

For those not familiar with an IRS private letter ruling, it is a request to the IRS to rule on a particular tax issue for a particular set of facts.  Once issued, the private letter ruling will specifically state the IRS' position on the particular issue, eliminating the need to second guess what might happen in the even of a later tax audit.  In that the letter ruling is private, this means that it can only be used by the taxpayer who made the request, and cannot be relied upon by any other taxpayer, even though their case might include identical facts, issues, etc.

Private letter rulings, or PLRs as they are often referred to as, can address all sorts of tax matters, such as whether a non-profit corporation is entitled to non-profit status, whether an IRA retirement contribution or account qualifies for tax deferral, whether a trust is exempt from generation skipping transfer tax, and whether a taxpayer is entitled to deduct certain business expenses or claim certain tax credits.

To help you understand the importance of a private letter ruling in the area of Medicaid planning, consider Private Letter Ruling 200620025.  In that case, a disabled son was one of four designated beneficiaries of the decedent's IRA.  Because the disabled son was eligible for Medicaid, his guardian sought permission of a local court to create a special needs trust ("SNT") for the son and to transfer his interested in the IRA to the trust.  The IRS ruled that the SNT that was created by the court for the benefit of the decedent's son was a grantor trust under IRS Code Sections 671 and 677(a), and that the transfer of the IRA to the SNT was not a taxable disposition under IRS Code Section 691(a)(2).  The IRS also ruled that the disabled son's life would be the measuring life for the minimum required distributions that would flow from the IRA.

Visit us at http://www.medicaidannuity.com/

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Krause Financial Services specializes in helping families qualify for Medicaid benefits through the use of Medicaid Compliant Annuities, and Veterans Aid & Attendance benefits through the use of various life and annuity insurance products.