How to Obtain Private Letter Ruling From IRS
Q: My wife and I have a financial situation that we believe conforms to the facts covered in a private letter ruling received by another set of taxpayers. We would like a similar decision and have been advised that we need to get our own private ruling. How do we do this? Is there a specific form that the Internal Revenue Service provides? Does an attorney have to handle this or can we do it ourselves? --J.F.S.
A: The IRS does not provide a specific form. The process you must follow to get a private letter ruling is spelled out in various “Revenue Procedures,” a regular feature in the IRS’s Cumulative Bulletin, a weekly publication available in most law libraries. Typically, the first revenue procedure published each year lists the necessary information.
However, there is more. Depending on the type of ruling you want, you must submit supporting documents and materials that deal with your particular issue. These are published in yet other Cumulative Bulletins. Some of these bulletins could be a few years old; some will be recent. The revenue procedure that applies to your case will tell you to which branch of the IRS national office you should send your private letter ruling request. Another source of IRS procedures is IRS Regulation 601, the statement of procedural rules.
Until a few years ago, the IRS did not charge for private rulings. However, when its mailbox began bulging with requests, fees were imposed. Currently, fees range from a few hundred dollars for determinations on simple matters to as much as $2,500 for complex issues. A revenue procedure will list the fee. In addition, there are attorney fees to consider.
Could you handle this by yourself? Possibly. But it might be time-consuming and complicated. However, if you know that the IRS has already issued a private letter ruling similar to one that you want, your task could be easier. You would be wise to submit a copy of the first ruling with the other materials required.
Widower Can Take One-Time Exemption
Q: My wife and I owned our home as joint tenants between 1959 and her death in 1982. I took sole title to the house in 1987. I sold it in 1990. I am 67. My understanding is that I am not eligible for the $125,000 one-time exemption on the profit from the sale because my wife, having died eight years ago, did not satisfy the requirement of living in the house for three of the last five years. But it didn’t really matter because I bought a new house for much more. But now, will I be able to take advantage of the exemption when I sell the new house? My deceased spouse obviously does not satisfy the holding and use requirement. --R.T.P.
A: First, you could have taken advantage of the profit exemption this year when you sold your house, even if your deceased wife could not meet the eligibility requirements. She didn’t have to--only you did. The same applies to your current house. So long as you meet the requirements--you are at least 55, you have lived in the house three of the last five years and the house is your principal residence--you are entitled to it.
One caveat: If you remarry and your new wife has already taken advantage of the exemption--it doesn’t matter if it was with another spouse--your eligibility is lost.
Real Estate Can Be Considered a Gift
Q: I own property in New Hampshire. My uncle owns 10 acres adjacent to mine and is considering selling it. He has agreed to give me approximately 0.6 acres as a buffer zone. One acre has been appraised at $15,000, which is considerably more than the property was worth when he inherited it from our grandfather. Can land be considered a gift and given tax-free if it is valued at less than $10,000? Do I have to pay any tax other than increased property taxes to the county? What is the paperwork needed to handle this transaction? --D.E.D.
A: Yes, land can be given as a gift if it meets the gift-tax value standards. And with only one exception, your uncle will not be required to pay capital gains on the property, despite its considerable appreciation. The only exception would crop up if your uncle passed on debt with the property that exceeded his tax basis in it.
Here’s how that situation might work: Let’s say that when the donor (your uncle) originally got the property from your grandfather, it was worth $500 per acre. As the land appreciated, your uncle mortgaged it to the tune of $10,000 per acre. If he owes more than $500 per acre on the land when he gives it to you--and you agree to assume the debt--the donor is considered to have a taxable gain to the extent that the debt he passes on exceeds his taxable basis in the property.
Regardless of what happens to the donor, you have no income tax obligation to the federal government. To complete the transaction, you can simply file a grant deed in the local New Hampshire county recorder’s office, detailing the legal description of the property that is being given to you. You do not need to note the gift on your income tax filing.
Last week’s column on Social Security benefits available to divorced spouses left the wrong impression about a divorced spouse’s eligibility for full widow’s or widower’s benefits upon the death of the wage earner. A divorced spouse may begin drawing benefits at 60, but he or she will receive only 71.5% of what the wage earner would have received. The percentage increases gradually until it hits 100% when the ex-spouse reaches 65.
