Content area
Full text
Rev. Proc. 2003-48, 29 IRB XXX, which was published on June 24, represents the latest assault by the IRS National Office on its own letter ruling process.1 This assault, combined with prior similar assaults, is detrimental to both taxpayers and the IRS, and therefore to tax administration in general. For decades the National Office has been issuing letter rulings to taxpayers on proposed transactions, a practice that has resulted in the issuance of literally tens of thousands of letter rulings. Each of these letter rulings has facilitated overall national tax administration in a number of ways. The benefits to taxpayers are evident - letter rulings give taxpayers virtual assurance regarding the tax consequences of the particular transactions they have proposed. The benefits to the IRS (and to optimal tax administration in general) may be less evident, but they are equally real. Through the letter ruling process, the National Office has been made aware of the existence of specific pending transactions and has been given the opportunity to analyze and comment on these transactions before they are consummated. This, in turn, has provided the National Office with an increased awareness of new types of transactions occurring in the ever-evolving business community, and has afforded the IRS the opportunity to seek changes in those transactions to comport with existing tax law (or, at least with the wishes of the National Office). Finally, once a letter ruling is issued, the audit process is simplified (for both the IRS and taxpayers), because there is no material audit issue with respect to the ruled-upon transaction for the IRS Field Offices to address in conducting its audit.
Thus, the letter ruling process is not today, nor has it ever been, a one-way street solely for the benefit of taxpayers. To the contrary, this process has been mutually beneficial for taxpayers and the IRS, resulting in clearer and more consistent tax administration.2 Despite these mutual benefits, however, the trend is clear - over the past 13 years, the National Office has been curtailing its involvement in the letter ruling process.
The comfort ruling
Perhaps the starting point for this discussion is not Rev. Proc. 2003-48, but Rev. Proc. 89-34, 1989-1 CB 917. Rev. Proc. 89-34 ushered in the broad-based era of...