jameshaque
- Nov 5, 2020
- 2 min read

How to read IRS Ruling

Updated: Nov 24, 2020

Revenue Ruling - The IRS written statements on how tax law applies to a set of facts or the IRS interpretation of a tax issue. Revenue rulings are issued by the National office and published in its internal Revenue Bulletin - Generally, it is a response to a request from an industry group or to express IRS agreement or disagreements with tax court decision, but Revenue Rulings come out only when it will be valuable to many taxpayers and IRS staffers use it only for a transaction involving the same facts and circumstances described in the ruling.

Determination Letter- Your IRS district office's interpretation of how an established area of tax law, applies to a completed transaction or existing condition request on only if your question can be "specifically answered by a statue, tax treaty, or regulation or by a conclusion stated in a revenue ruling opinion, or court decision published in the internal Revenue Bulletin" ( Rev. Proc.. 94-, sec.6, 1994-1 IRS21).

Information Letter - A general letter statement of well defined law without reference to a specific situation in response to a request by a taxpayer or congressional representative it is advisory only, not binding on the IRS.

Letter Ruling (or Private Letter Ruling) - The IRS national office's interpretation of tax law of new, unsettled, complicated or controversial situation and sometimes of proposed of completed transactions. Tax professionals request it if they think the tax treatment of a transaction is uncertain in light of IRS rules or regulations or court decision.

Opinion Letter - An IRS auditor opinion about audit findings, for example - an IRS auditor would review your employment records and decides a class of workers are really ICS nd send you an opinion letter. If the follow year the auditor are claiming something else you can cite the first opinion letter to show you are incompliance. If you are audited request an opinion letter from the IRS, Auditors rarely give them unless you ask.

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LLC Formations

The limited liability company (LLC) is a business entity that offers limited liability protection and pass-through taxation. An LLC is a hybrid type of business structure. It contains elements of both a traditional partnership and a corporation. LLC can be managed by either by the members or by managers.

The members/owners in such a business enjoy a limited liability, similar to shareholders in a corporation. However, a tax return for the LLC must be completed. Any income or loss of the LLC as shown on this return will pass through to the owner(s). The owners, also called members, must then report the income or loss on their personal tax returns and pay any necessary tax.

As with a corporation, the LLC legally exists as a separate entity from its owners. Therefore, the owners cannot typically be held personally responsible for the debts and liabilities of the LLC.

Advantages of an LLC:

Members will share in potential profits and in the tax deduction with fewer financial risks

LLCs generally have no ownership restrictions

LLC offers a relatively flexible management structure.

An LLC does not require as much annual paperwork, or have as many formalities, as a corporation.

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Taxes

The federal government of the United States imposes a progressive tax on the taxable income of individuals, partnerships, companies, corporations, trusts, decedents' estates, and certain bankruptcy estates. Some state and municipal governments also impose income taxes. The first Federal income tax was imposed (under Article I, section 8, clause 1 of the U.S. Constitution) during the Civil War, then again in the 1890s, and again after the Sixteenth Amendment was ratified in 1913. Current income taxes are imposed under these constitutional provisions and various sections of Subtitle A of the Internal Revenue Code of 1986, as amended, including 26 U.S.C. § 1 (imposing income tax on the taxable income of individuals, estates and trusts) and 26 U.S.C. § 11 (imposing income tax on the taxable income of corporations).

Congress has typically shown a preference for long-term investment by having a capital gains tax rate lower than the ordinary income rate. However, only long-term capital gains get preferential treatment; short-term capital gains (from property held for one year or less) are taxed at the same rate as ordinary income. Added complications come from various distinctions within each category. For instance, qualified dividends, which were previously taxed at ordinary income rates (as non-qualified dividends currently are), are currently taxed at long-term capital gain rates until 2011 under the Jobs and Growth Tax Relief Reconciliation Act of 2003, and within long-term capital gains, gains on certain real estate, collectibles, and small business stock each have their own tax rates.