IRS can now decline a ruling for “resource constraints”

Every year, IRS revenue procedure number three lists the IRS’s “no rule” areas. These are areas where the IRS will decline to issue private letter rulings. Some are areas of legal contention, others are areas with too many factual issues for a ruling to be worth the effort (as they can be overturned for material factual inaccuracy).

This year, Rev. Proc. 2014-3 added new grounds for declining to issue a ruling: “resource constraints.” Section 3.02(10) of Rev. Proc. 2014-3 reads:

“(10) Questions that the Service determines, in its discretion, should not be answered in the general interests of sound tax administration, including due to resource constraints.”

“Sound tax administration” has long been grounds to decline a ruling, but the “including due to resource constraints” language is new.  The Rev. Proc. goes on to say that if it declines in an area for “resource constraints,” it will similarly treat other taxpayers with the same issue.

“If the Service determines that it is not in the interest of sound tax administration to issue a letter ruling or determination letter due to resource constraints, it will adopt a consistent approach with respect to taxpayers that request a ruling on the same issue. The Service will also consider adding the issue to the no rule list at the first opportunity.”

I’ve seen response times all across the IRS going way up lately, so I shouldn’t be surprised. At the same time, this seems to be sacrificing the efficient operating of our tax system for a short-term savings. Decreased rulings means more and more expensive tax controversy later. The reason private letter rulings exist is because it is cheaper in the long run if the IRS and taxpayers can handle complex issues in advance in a less adversarial process than administrative controversy and litigation.

Rev. Proc. 2014-3 can be downloaded from the IRS’s website here: