• Explanation

A taxpayer can rely on any IRS interpretation in which the IRS directly refers to that taxpayer and determines how the tax laws relate to the taxpayer's specific tax situation. If the IRS interpretation favors a position the taxpayer plans to take in its tax return, the interpretation represents substantial authority for that position. Examples of IRS interpretations include:

• Determination letter—a formal ruling by the IRS on the qualification status of an employer's retirement plan (Choice A)
• Technical advice memorandum—guidance given by the IRS Office of Chief Counsel to an IRS official who needs specific rulings on a taxpayer's technical or procedural matters (Choice B)
• Revenue agent's report—a report issued by an IRS examiner detailing the findings and conclusions of a tax audit (Choice C)

A private letter ruling (PLR) is a formal interpretation of how the IRS believes then current tax laws should be applied to a taxpayer's situation. The taxpayer can rely on this interpretation when taking a position in a tax return, and the IRS will be required to follow the PLR. However, if Treasury Regulations are subsequently issued that are inconsistent with the PLR, the PLR is no longer valid. In the tax rules hierarchy, Treasury Regulations command higher authority than a PLR.

Things to remember:
A taxpayer can rely on any IRS interpretation in which the IRS directly refers to that taxpayer and determines how the tax laws relate to the taxpayer's specific tax situation. IRS interpretations include private letter rulings (PLRs). If Treasury Regulations issued after a PLR are inconsistent with the PLR, the PLR is no longer valid.

Lecture References :

• REG 8.02 : Ethics & Responsibilities in Tax Practice: Preparer Responsibilities