6694 - written determinations

Substantial authority may be established from written determinations from the IRS as the result of requests for a "ruling" issued by the office of the IRS Chief Counsel.

Reg sections 1.6663-4(d)(3)(iv)(A) and 301.6110-2(d) and (e) are uploaded below.

The advantage of an advance ruling from the IRS on any technical issue is that return preparers and their clients can rely on that determination even if that determination turns out to be wrong. It provides a certain way to avoid return preparer penalties and client penalties. More importantly, it will prevent penalties on clients. In corporate reorganizations and similar transactions, it will provide certainty at the corporate level and the shareholder level.

This procedure for should be transactions or tax issues that are highly complex and involve transactions with large dollar impact or high risk tax positions. Obviously, the IRS has the option or ruling favorably or unfavorably. My advice is to first get an opinion from a tax expert to evaluate the changes of getting a favorable ruling from the IRS National Office.

Although the regulations do not address 6694(b), it is my opinion that it would be impossible for the IRS to assess penalties under section 6694(b) with a favorable ruling from the IRS National Office.



1.6662-4. Substantial understatement of income tax

(d) Substantial authority

(3) Determination of whether substantial authority is present

(iv) Special rules

(A) Written determinations. --There is substantial authority for the tax treatment of an item by a taxpayer if the treatment is supported by the conclusion of a ruling or a determination letter (as defined in §301.6110-2(d) and (e)) issued to the taxpayer, by the conclusion of a technical advice memorandum in which the taxpayer is named, or by an affirmative statement in a revenue agent's report with respect to a prior taxable year of the taxpayer ("written determinations"). The preceding sentence does not apply, however, if --

(1) There was a misstatement or omission of a material fact or the facts that subsequently develop are materially different from the facts on which the written determination was based, or

(2) The written determination was modified or revoked after the date of issuance by --

(i) A notice to the taxpayer to whom the written determination was issued,

(ii) The enactment of legislation or ratification of a tax treaty,

(iii) A decision of the United States Supreme Court,

(iv) The issuance of temporary or final regulations, or

(v) The issuance of a revenue ruling, revenue procedure, or other statement published in the Internal Revenue Bulletin.

§301.6110-2. Meanings of terms

(d) Ruling. --A "ruling" is a written statement issued by the National Office to a taxpayer or to the taxpayer's authorized representative (as such term is defined in §601.201(e)(7) of this chapter) on behalf of the taxpayer, that interprets and applies tax laws to a specific set of facts. A ruling generally recites the relevant facts, sets forth the applicable provisions of law, and shows the application of the law to the facts.

(e) Determination letter. --A "determination letter" is a written statement issued by a district director in response to a written inquiry by an individual or an organization that applies principles and precedents previously announced by the National Office to the particular facts involved.
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