When the IRS Speaks
A guide to the agency’s various edicts
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here is always the temptation to jump
to conclusions when the Internal Revenue Service takes what appears to be a
favorable stance on a question affecting tax-exempt clubs. Consider, for example, what the IRS calls an
“information letter,” which, according to Jim Reilly of the accounting firm
Condon O’Meara McGinty & Donnelly, is intended
“to call attention to a well-established interpretation or principle of tax law
without applying it to a specific set of facts.
In short, since information letters only call attention to
well-established principles of tax law, there should be nothing new in such
letters.
“Information letters are advisory
only and have no effect on the Service,” Reilly added. In other words, if the IRS happens to issue
an information letter saying clubs could, in some cases, advertise for
nonmember business, it is not a signal for club marketers to rush out and
aggressively pursue nonmemberbusiness.” An information letter would not change the
Regulation, which states:
“Solicitation by advertisement or otherwise for public patronage of its
facilities is prima facie evidence that the club is engaging in business and is
not being operated exclusively for pleasure, recreation or social purposes.”
So what in the IRS arsenal of
information does and does not carry weight?
Here is a glossary, courtesy of Reilly:
Regulation.
A regulation is a rule from the IRS commissioner, approved by the
Secretary of the Treasury, for the application and administration of Internal
Revenue laws. “The purpose of
regulations is to provide taxpayers, their representatives and IRS personnel
with rules of general application so they may clearly understand the
taxpayer’s rights and duties under the law,” Reilly said. “Final regulations carry the force and
effect of law.”
Revenue ruling.
A revenue ruling is an official interpretation by the IRS of the
Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the
law is applied to a specific set of facts.
“A revenue ruling states the IRS position on an issue,” Reilly
said. “Revenue rulings do not have
the force and effect of regulations, but they may be used as precedents.”
Revenue
procedure. A revenue procedure is an official statement
of a procedure that affects the rights or duties of taxpayers or other members
of the public under the Internal Revenue Code, related statutes, tax treaties
and regulations. “While a revenue
ruling generally states an IRS position,” Reilly said, “a revenue
procedure provides return filing or other instructions concerning an IRS
position.” For example, a revenue
procedure might specify how those entitled to deduct automobile expenses should
compute those expenses. As with revenue
rulings, revenue procedures do not have the force and effect of regulations,
Reilly added, but they may be used as precedents.
Private letter
rulings, technical advice memoranda and chief counsel advice.
Private letter rulings (PLR) are written memoranda furnished by
the IRS national office in response to requests by taxpayers. Technical
advice memoranda (TAM) are written memoranda furnished by the IRS national
office when requested by a district director or chief appeals officer. Chief counsel
advice (CCA) is written advice or instructions prepared by the Office of
Chief Counsel of the IRS and sent to certain IRS staff.
“PLRs, TAMs and CCAs cannot be used
or cited as precedent,” Reilly said.
“Nevertheless, they are significant to the extent that such documents
contain a cogent analysis of tax law.
Quite a bit of our understanding of the IRS view of the federal tax law
comes from such documents.”
(James J. Reilly (jreilly@comdcpa.com)
is a partner in the accounting firm Condon O’Meara McGinty
& Donnelly,