In a previous blog post linked here, I outlined the IRS private letter ruling process, including the mechanics of making a request and tips for presenting your ruling request to the IRS. In this blog post, I touch on the IRS’ “no ruling” lists issued this month as well as discuss a strange invitation by the IRS for taxpayers to use the private letter ruling process to seek guidance on …. wait for it….. cryptocurrency taxation.
As a brief refresher, a private letter ruling is a written decision by the IRS in response to a taxpayer’ request for request or guidance. The IRS will interpret and apply the tax laws to certain assumed facts and issue a letter to the taxpayer upon which they can rely in reporting their taxes. The IRS, however, will not rule on every issue that a taxpayer brings before it. Earlier this month, the IRS issued Revenue Procedure 2020-3 and Revenue Procedure 2020-7, identifying those domestic and international areas, respectively, that the IRS will not issue a letter ruling or determination letter. Interestingly, the IRS both added, and deleted, issues from the domestic list. Copies of both Revenue Procedures may be found in IRS Bulletin 2020-1 linked here.
In perhaps more noteworthy news, on January 13th at the Practicing Law Institute conference, IRS officials announced that the IRS is willing to explore private letter ruling requests by taxpayers on cryptocurrency taxation issues. This announcement comes on the heels of Revenue Ruling 2019-24 issued last fall, wherein the IRS addressed the taxation of hard forks and air drops in a way that many tax practitioners found lacked clarity and reflected the IRS’ misunderstanding of how the subject transactions actually works in the virtual world. At the conference, IRS officials also highlighted the addition to Schedule 1 on the 2019 Form 1040, which asks taxpayers whether they received, transferred, exchanged, or otherwise acquired any financial interest in virtual currency during 2019.
It remains to be seen whether the IRS is genuinely interested in providing guidance to taxpayers through the private letter ruling process or just using the process as a means to learn more about cryptocurrency transactions. Based on its most recent guidance, it seems clear that the IRS needs all the help it can get to make its way along the learning curve.
If you have a questions about the PLR process or cryptocurrency taxation, please do not hesitate to contact me at (214) 749-2464 or firstname.lastname@example.org.