Gleaning IRS guidance: Part II of a primer on IRS pronouncements that provide guidance for expert witnesses.

• Author: Reilly, Robert F.
• Position: Internal Revenue Service

CPAs in the litigation support-expert testimony arena often seek professional guidance with regard to valuing unique assets, properties, or business interests. Typically, CPAs first research the relevant professional appraisal standards and appraisal organization materials. When these sources are insufficient, they may next research the relevant statutory authority, judicial precedent, and administrative rulings, particularly if the valuations will be subject to judicial scrutiny.

When seeking professional guidance regarding litigation-related valuation, CPAs first consider statutory authority and judicial precedent regarding the specific litigation matter. However, when this guidance is still insufficient. CPAs may look to Internal Revenue Service (IRS) pronouncements.

To use these pronouncements and publications effectively, CPAs need to understand the relationship and relative authority of IRS pronouncements, as well as their relative precedent value (or lack thereof) with regard to federal taxation valuation matters.

Part I of this series covered publications presenting official IRS positions (regulations, revenue rulings, and other pronouncements and publications), IRS instructional publications, and announcements, notices, and news releases. This part covers advance rulings and determinations as well as new types of IRS pronouncements.

Advance rulings and determinations

Advance rulings and determination letters provide a response to taxpayers as to their status for tax purposes and the tax effects of their proposed acts or transactions.

Private Letter Rulings

A private letter ruling (PLR) is a written response to a taxpayer by the IRS National Office. A private letter ruling interprets and applies the tax laws to a taxpayer's specific set of facts. PLRs constitute a historical record of interpreting the IRS position. They have high credibility since the IRS is unlikely to reverse itself once it has established a position on a certain tax issue.

The IRS generally has the discretion to issue letter rulings whenever it is in the interest of sound tax administration to do so. In certain tax areas, however, rulings are mandatory--that is, the taxpayer must request a ruling and the IRS must issue one in response. Although each letter ruling states that it can only be relied on by the taxpayer to whom it is addressed, some courts have used a letter ruling as an indication of the IRS position on a particular issue.

In the citation (IRS PLR...