IRS’s Different Guidance Forms
There are different forms of communication the Chief Counsel can use in order to relay tax guidance to individuals. These forms of communication, which can be interpreted in a highest to lowest authoritative level, can be:
- Issued by the Internal Revenue Service (IRS) and Treasury Department to provide the House of Representatives with guidance on the creation of new legislation or amendments to current Code sections. It is the IRS’s job to implement such regulations.
- Tax Court Rulings
- Created by Congress as an independent judicial authority—similar to Bankruptcy and Military Courts. All disputes revolve around Taxpayers who are disputing IRS decisions.
- Revenue Rulings
- A way for the IRS to give an official interpretation of the Internal Revenue Code, tax treaties, regulations, and even statutes to the public. These types of published documents can be used as precedent.
- Revenue Proceedings
- Guides the public on how to return a tax filing or it can give the general public instructions on the IRS’s position found within certain Revenue Rulings.
- Chief Counsel Memorandums
- Used for IRS internal purposes which help break down technical and procedural matters that frequently appear throughout the Internal Revenue Code
- Private Letter Rulings
- Written statements created by Associate Chief Counsel Office Personnel upon the request from a single taxpayer.
- Technical Advice Memorandum
- Prepared by IRS Associate Chief Counsel upon a request from area directors or the IRS Director. Usually surrounds a taxpayer’s return, a dispute for a refund, or other matters the taxpayer would argue within the area directors region. Provides guidance on the interpretation of tax laws, treatises, regulations, revenue rulings, or any other documents that could be used as a precedent. These Memorandums represent the IRS final position on the issue at dispute.
- Acts as a public announcement that contains guidance on how to interpret the Internal Revenue Code or other tax law, even if the regulations may not be published in the immediate future.
- Similar to Notice, however it only should be valued as much as a short term notice. Will only be useful in the immediate future and holds less value than Notices because the IRS does not have to include any substantive interpretations of tax law in these Announcements.
What is the Difference Between Private Letter Rulings and Chief Counsel Memorandums?
Private Letter Rulings (PLR) are written statements created by Associate Chief Counsel Office Personnel upon the request from a single taxpayer. These documents interpret and apply the laws specific to the taxpayers facts in question. Most of these PLRs are issued before the taxpayers return is filed in order to put the taxpayer on notice surrounding the potential federal tax consequences if the transaction were to be filed. This document is binding on the IRS, as long as the facts displayed in the request are in good faith and written accurately. However, PLRs cannot be used as precedent by IRS Personnel or other taxpayers—meaning specific language and analysis discussed within the case cannot be used to supplement and justify any subsequent argument that may arise.
Chief Counsel Memorandums are used for IRS internal purposes which help break down technical and procedural matters that frequently appear throughout the Internal Revenue Code. This document cannot be used as precedent for the individual taxpayer but may be used for internal purposes by the IRS as guidance, generally for IRS Counsel positions or policy regarding a revenue provision. Therefore, the guidance set forth within a Chief Counsel Memoranda has more weight than one found within a Private Letter Ruling.
Why IRS Guidance Helps Taxpayers
Taxes can become very complex and nuanced when it comes down to specialized tax codes. Specifically, Section 1202 can be considered one of the more complex sections the US Tax Code has to offer and taxpayers need guidance on how to interpret the QSBS section. IRS Guidance is very important in preparation for tax filing because taxpayers are said to need at least “substantial authority” for tax treatment—40% of filing successfully. However, some taxpayer may be able to successfully file by having a reasonable basis for their specific tax treatment—25% of filing successfully. For more information on tax filing and supportive documentation look here.
QSBS requirements are complex, but given the magnitude of the potential exemption, attention to these factors and a small investment in performing a proper analysis could prove valuable in taking the appropriate steps to claim the exemption and in case of an audit. QSBS Expert offer solutions to help you validate that your shares are QSBS eligible and gather supporting documentation.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.