Rev. Rul. 54-172

SECTION 1. PURPOSE.

The purpose of this Revenue Ruling is to describe the authority and general procedures of the various offices of the Internal Revenue Service in issuing rulings and determination letters to taxpayers and in entering into closing agreements on specific issues as to the interpretation or application of the income tax, profits tax, estate tax, gift tax, employment tax, and excise tax laws (other than alcohol, tobacco, and certain firearms taxes). This Revenue Ruling is intended to inform taxpayers and their representatives of the appropriate offices of the Internal Revenue Service to which they may direct requests for rulings, determination letters, or closing agreements in order to promote the efficient handling of their inquiries by the Internal Revenue Service.

SEC. 2. GENERAL POLICY AND DEFINITIONS.

.01 It is the policy of the Internal Revenue Service to answer inquiries of individuals and organizations, whenever appropriate in the interest of sound tax administration, as to their status for tax purposes and as to the tax effects of their acts or transactions, prior to their filing of returns or reports as required by the revenue laws. One of the functions of the National Office of the Internal Revenue Service is the issuance of rulings on such matters. District Directors of Internal Revenue apply the statute, regulations and rulings of the National Office in the determination of tax liability and the collection of taxes, and are authorized, as provided in this Revenue Ruling, to issue determination letters within the scope of their functions in answer to taxpayers' inquiries or requests.

.02 The term "ruling" is used to describe a written statement issued by the National Office of the Internal Revenue Service which is an expression of the official interpretation or policy of the office of the Commissioner of Internal Revenue. Rulings are issued by the Commissioner, or under his authority, and are intended to serve the purpose of establishing principles and policies of the Service in the interpretation and application of substantive tax law. Rulings are issued only by the National Office of the Internal Revenue Service. The Assistant Commissioner (Technical), acting under a delegation of authority from the Commissioner, is in general responsible for the issuance of rulings. This authority is, subject to appropriate supervision, redelegated to the Tax Rulings Division and its Branches.

.03 The term "determination letter" is used to describe a written statement issued by a District Director of Internal Revenue in response to an inquiry by an individual or an organization, and solely by way of application to the facts involved in a particular inquiry or request of the principles and policies previously established by the National Office. Determination letters are issued only where a determination can be made on the basis of clearly established rules as set forth in the statute, Treasury Decisions or Regulations, or rulings, opinions or court decisions published in the Internal Revenue Bulletin. Where such a determination cannot be made (such as where the question presented involves a novel issue) or the matter is excluded from the jurisdiction of a District Director of Internal Revenue by the provisions of this Revenue Ruling, a determination letter will not be issued by the District Director.

.04 The term "closing agreement" is used to describe an agreement between the Commissioner of Internal Revenue and a taxpayer with respect to a specific issue or issues pursuant to section 3760 of the Internal Revenue Code. Such closing agreements are based on rulings which have been signed by the Commissioner and in which the Commissioner indicates that he will enter into a closing agreement upon the basis of the holding of the ruling letter.

SEC. 3. RULINGS ISSUED BY THE NATIONAL OFFICE IN WASHINGTON, D. C.

.01 In income, profits, estate, and gift tax matters the National Office will exercise jurisdiction with respect to prospective transactions and with respect to completed transactions affecting returns to be filed, except that it will not ordinarily issue rulings to taxpayers or their representatives in connection with returns to be filed if the identical issue is also involved in a return or returns of the taxpayer already filed for a taxable period or periods with respect to which the statutory period of limitation on assessment or refund of tax has not expired. As to inquiries involving the qualification of a plan under section 165(a) of the Internal Revenue Code, and the exempt status of an organization under section 101 of the Internal Revenue Code, see sections 4.04 and 4.05 of this Revenue Ruling.

.02 In employment and excise tax matters the National Office will exercise jurisdiction over requests for rulings received in the National Office whether such request is received direct from the taxpayer or whether it is received through the office of a District Director of Internal Revenue, except that the National Office will not ordinarily issue a ruling to a taxpayer or his representative if it knows or has reason to believe that the issue is before the District Director in an active examination or audit of the liability of the taxpayer. Likewise, the National Office will not ordinarily take jurisdiction of an issue with respect to future action if it knows or has reason to believe that the identical issue is before the District Director in an active examination or audit of the liability of the taxpayer for a prior period.

SEC. 4. DETERMINATION LETTERS ISSUED BY DISTRICT DIRECTORS OF INTERNAL REVENUE.

.01 In income, profits, estate, and gift tax matters District Directors of Internal Revenue are authorized to issue determination letters in response to taxpayers' requests submitted to their offices involving completed transactions only, which affect returns required to be filed in their districts, but only if the question presented is covered specifically by statute, Treasury Decision or Regulations, or specifically by a ruling, opinion, or court decision published in the Internal Revenue Bulletin. Determination letters will not usually be issued with respect to a question which involves an income, profits, estate, or gift tax return or returns to be filed by the taxpayer if the identical question is involved in a return or returns already filed by the taxpayer. District Directors of Internal Revenue may not issue determination letters as to the income, profits, estate, or gift tax consequence of prospective or proposed transactions, except as provided in paragraph .04 of this section.

.02 In employment and excise tax matters District Directors of Internal Revenue are authorized to issue determination letters in response to requests from taxpayers who have filed or who are required to file returns in the district over which they have jurisdiction, but only if the question presented is covered specifically by statute, Treasury Decision or Regulations, or specifically by a ruling, opinion, or court decision published in the Internal Revenue Bulletin. Because of the impact of these taxes upon the business operations of the taxpayer and because of the peculiar problems of administration both to the Service and to the taxpayer, District Directors of Internal Revenue shall take appropriate action in regard to such requests received whether the request is in regard to completed or prospective transactions or a return previously filed or to be filed.

.03 Notwithstanding the provisions of paragraphs .01 and .02 of this section, a District Director of Internal Revenue may not issue a determination letter in response to an inquiry, although presenting a question covered specifically by statute, regulations, or a ruling, etc., published in the Internal Revenue Bulletin, where (1) it appears that a similar inquiry from the taxpayer has been directed to the National Office, (2) the determination letter is requested by an industry, trade association, or similar group, or (3) the request involves an industry-wide problem. Under no circumstance will a District Director of Internal Revenue issue a determination letter unless it is clearly indicated that the inquiry is with regard to a taxpayer or taxpayers in the district under the supervision of the District Director who receives the request. Notwithstanding the provisions of paragraph .02 of this section, the District Director of Internal Revenue may not issue a determination letter on an employment tax question when the specific question involved has been or is being considered by the National Office or the Social Security Administration. Nor may the District Director of Internal Revenue issue a determination letter on an excise tax question if the request is for a determination of fair market price under sections 3441(b) and 3444 of the Internal Revenue Code or for a determination of fair charges under section 3460 of the Internal Revenue Code.

.04 The authority and procedure provided in Revenue Ruling 32, C. B. 1953-1, 265, with respect to the disposition by District Directors of requests covering the qualification of plans under section 165(a) of the Internal Revenue Code is continued, but for this purpose the letters issued by District Directors in response to such requests shall be considered and designated as "determination letters."

.05 District Directors of Internal Revenue have authority to issue determination letters as to the qualification of certain organizations for exemption from Federal income tax under section 101 of the Internal Revenue Code in accordance with instructions issued in this connection. See Rev. Rul. 54-164, p. 88, this Bulletin.

.06 A request received by a District Director of Internal Revenue with respect to a question involved in an income, profits, estate, or gift tax return or returns already filed will, in general, be considered in connection with the examination of the return or returns. However, if response to such inquiry is made prior to an examination or audit, it will not be considered a determination letter but will be considered a tentative finding in any subsequent examination or audit of the return.

SEC. 5. DISCRETIONARY AUTHORITY TO ISSUE RULINGS AND DETERMINATION LETTERS.

.01 Except as provided in paragraph .02 of this section, the Internal Revenue Service has discretionary authority to issue determination letters or rulings (or to approve closing agreements pursuant to section 3760 of the Internal Revenue Code). That discretion will be exercised in the light of all relevant circumstances, including the business or other reasons motivating the transaction, and with a view to issuing determination letters or rulings (or approving closing agreements) only to the extent consistent with a wise administration of the revenue system.

.02 Rulings will be made in the National Office on prospective transactions where the law or regulations provide for a determination of the effect of a proposed transaction for tax purposes, as in the case of a transfer coming under the provisions of section 1250 and section 1251 of the Internal Revenue Code, or an exchange coming under the provisions of section 112(i) of the Code.

SEC. 6. QUESTIONS ON WHICH NO RULING OR DETERMINATION LETTER WILL BE ISSUED.

In addition to the other situations described herein, rulings or determination letters ordinarily will not be issued in connection with income, profits, estate, and gift tax matters where the determination requested is primarily one of fact, e. g., (1) market value of property, (2) whether compensation is reasonable in amount, (3) whether a transfer is one in contemplation of death, (4) whether retention of earnings and profits by a corporation is for the purpose of avoiding surtax on its shareholders, or (5) whether a transfer or acquisition is within section 15(c) or section 129 of the Internal Revenue Code.

SEC. 7. INSTRUCTIONS TO TAXPAYERS.

.01 Requests for determination letters and rulings should be submitted in duplicate if more than one issue is presented in the request or if a closing agreement is also requested with respect to the issue presented. Requests relating to prospective transactions should not contain alternative plans. Each request for a determination letter or a ruling on either a prospective transaction or a completed transaction must include the following:

(a) A complete statement of the facts regarding the transaction, including the names and addresses of all the interested parties, together with a copy of each contract or other document necessary to present such facts. (Inasmuch as exhibits and documents will be retained in the Service files, original documents should not be furnished.) If the subject matter is a corporate reorganization, distribution, or similar or related transaction, there should also be submitted the corporate balance sheet nearest the date of the transaction (the most recent balance sheet if the transaction is prospective).

(b) A full and precise statement of the business reasons, if any, for the transaction.

(c) If the taxpayer is contending for a particular determination, an explanation of the ground for such contention, together with a memorandum of relevant authorities.

.02 If the request is with respect to the qualification of a plan under section 165 of the Code, see Rev. Rul. 32, supra. If the request is with respect to the qualification of an organization for exemption from Federal income tax under section 101 of the Code, see Rev. Rul. 54-164, 5, supra.

.03 A request by or on behalf of a taxpayer must be signed by the taxpayer or his duly authorized representative. If the matter is being handled by a representative of the taxpayer, the conference and practice requirements regarding the furnishing of power of attorney, evidence of enrollment to practice, etc., must be met. Requests with respect to matters on which a ruling is desired from the National Office should be addressed to the Commissioner of Internal Revenue, Washington 25, D. C. Requests with respect to matters on which a determination letter from a District Director of Internal Revenue is desired should be addressed to the office of the District Director with which the tax return of the taxpayer has been filed or is required to be filed. In this connection see also Rev. Rul. 32, and Rev. Rul. 54-164, supra.

.04 A taxpayer or his representative who desires an oral discussion of the issue or issues involved should indicate such desire in writing when filing the request or shortly thereafter in order that the conference may be arranged at that stage of the consideration when it will be most helpful. Since a conference is usually more helpful during earlier stages of the consideration, the taxpayer or his representative should not request that the conference be deferred until Internal Revenue Service action (whether or not in accord with the taxpayer's contention) is imminent. More than one conference should not be sought unless the taxpayer has important new matters to present, or unless the problems involved require consideration of the case by different divisions or offices of the Internal Revenue Service. If the Service finds that additional conferences are necessary the taxpayer or his representative will be so advised.

.05 It is the practice of the Service to process requests for rulings or determination letters in regular order and as expeditiously as possible. Compliance with a request for consideration of a particular matter ahead of its regular order tends to delay the disposition of other matters. However, requests for processing ahead of the regular order, made in writing and showing clear need for such treatment, will be given consideration as the particular circumstances warrant.

.06 Where a taxpayer receives a determination letter or a ruling prior to the filing of his return he should attach to his return the determination letter or ruling (or a copy thereof) with respect to any transaction which has been consummated and which is relevant to the return being filed.

SEC. 8. REFERENCE OF MATTERS TO THE NATIONAL OFFICE.

.01 Requests for determination letters received from taxpayers by District Directors of Internal Revenue and which, in accordance with the provisions of this Revenue Ruling, are not to be acted upon by the District Director shall be forwarded to the National Office for reply, and the taxpayer advised accordingly. Any question as to the authority of the District Director to act on a specific matter should be resolved in favor of referring the matter to the National Office.

.02 District Directors of Internal Revenue are authorized to refer to the National Office any request for a determination letter which, in their judgment, warrants the attention of the National Office. Likewise, District Directors are authorized, in the audit or examination of a return or returns, to request technical advice from the National Office, by addressing such requests to the Assistant Commissioner (Operations), who will refer the matter to the Assistant Commissioner (Technical). A technical advice memorandum will be issued to the District Director of Internal Revenue by the Assistant Commissioner (Technical) or his delegate. The practice provided for under Com.-Mimeograph 6293, C. B. 1948-2, 59, for hearings in the National Office where the District Director refers an issue to the National Office for technical advice will continue, with the appropriate substitution of the titles of offices and officers as provided by orders issued to implement Reorganization Plan No. 1 of 1952.

SEC. 9. REFERENCE OF MATTERS TO DISTRICT DIRECTORS.

Requests for rulings received from taxpayers by the National Office which, in accordance with the foregoing provisions, are not to be acted upon by the National Office shall be forwarded for appropriate action to the District Office in which the return has been or will be filed. The taxpayer shall be advised of the action taken.

SEC. 10. WITHDRAWAL OF REQUESTS.

The taxpayer's request for a ruling or a determination letter may be withdrawn at any time prior to the signing of the letter of reply. The withdrawal of the request will not prevent the National Office from furnishing its views to the District Director in whose office the return has been or will be filed. Neither shall such withdrawal prevent a District Director of Internal Revenue from considering the information submitted in a subsequent audit or examination of the taxpayer's return. Even though a request is withdrawn all correspondence and exhibits shall be retained in the files of the Internal Revenue Service and may not be returned to the taxpayer.

SEC. 11. ORAL ADVICE TO TAXPAYERS.

It is the policy of the Service not to issue rulings or determination letters upon oral request. For reasons of sound administration, oral opinions or advice given to taxpayers by employees or officers of the Internal Revenue Service are considered as aids to taxpayers only.

SEC. 12. EFFECT OF RULINGS.

.01 Generally no statement by any official of the Internal Revenue Service, other than a closing agreement under section 3760 of the Internal Revenue Code, is final and conclusive upon the Internal Revenue Service. However, see paragraphs .05, .06, and .07 of this section.

.02 As part of the determination of a taxpayer's liability, it is the responsibility of the District Director to ascertain whether any ruling previously issued to the taxpayer has been properly applied. Thus, it should be determined whether the representations upon which the ruling was based reflected an accurate statement of the material facts and whether the transaction actually was carried out substantially as proposed.

.03 If, in the course of the determination of the tax liability, it is the view of the District Director that a ruling previously issued to the taxpayer should be modified or revoked, the findings and recommendations of the District Director should be forwarded to the National Office for consideration of the matter prior to further action. Such reference to the National Office will be considered a request for technical advice and the procedures applicable to such requests will be followed. Otherwise, the ruling is to be applied by the District Director in his determination of the taxpayer's liability.

.04 Appropriate coordination with the National Office shall be undertaken in the event that any other field official having jurisdiction of a return or other matter proposes to reach a conclusion contrary to a ruling previously issued to the taxpayer.

.05 A ruling found to be in error or no longer in accord with the position of the Internal Revenue Service may be modified or revoked. Modification or revocation may be effected by a notice to the taxpayer to whom the ruling originally was issued, or by a ruling or other statement published in the Internal Revenue Bulletin. However, it is the general policy of the Internal Revenue Service to limit the revocation or modification of a ruling issued to or with respect to a particular taxpayer to a prospective application only, (a) if there has been no misstatement or omission of material facts, (b) the facts subsequently developed are not materially different from the facts on which the ruling was based, (c) there has been no change in the applicable law, and (d) such taxpayer acted in good faith in reliance upon such ruling and a retroactive revocation would be to his detriment.

.06 With respect to rulings published in the Internal Revenue Bulletin, it is the general policy of the Service that taxpayers may rely upon such rulings in determining the rule applicable to their own transactions and need not request a specific ruling applying the principles of the published ruling to the facts of the taxpayer's particular case where otherwise applicable. See, however, .08 of this section. In the event of revocation or modification of a ruling published in the Internal Revenue Bulletin, it is the general practice of the Service to make such revocation or modification prospective only.

.07 Under the provisions of section 1108(b) of the Revenue Act of 1926 (which is regarded as still in effect even though not incorporated in the Internal Revenue Code), a ruling holding that the sale or lease of a particular article is subject to the manufacturers' excise or the retailers' excise tax must be limited in its retroactive application in any case, where (1) such ruling reverses a prior ruling holding the particular article to be nontaxable, and (2) the taxpayer in reliance upon such ruling parted with possession or ownership of such article without passing the tax on to his customer.

.08 Since each ruling represents the conclusion of the Service as to the application of the law to the entire state of facts involved, revenue officials and others concerned are cautioned against reaching the same conclusion in other cases unless the facts and circumstances are substantially the same. Furthermore, Service personnel and others concerned should, in this connection, consider the effect of subsequent legislation, regulations, court decisions, and rulings.

SEC. 13. EFFECT OF DETERMINATION LETTERS.

A determination letter issued by a District Director, in accordance with this Revenue Ruling, shall be given the same effect upon examination of the return of the taxpayer to whom the determination letter was issued as is described in section 12, in the case of a ruling issued to a taxpayer, except that reference to the National Office is not necessary where upon the examination of the return it is the opinion of the District Director that a conclusion contrary to that expressed in the determination letter is indicated. A District Director is not authorized to limit the revocation of a determination letter to a prospective application only, but may refer the matter to the National Office for exercise by the Commissioner, or his delegate, of the authority so to limit the revocation.

SEC. 14. EFFECT ON OTHER DOCUMENTS.

.01 Rev. Rul. 10, C. B. 1953-1, 488, is superseded by this Revenue Ruling.

.02 Rev. Rul. 32, C. B. 1953-1, 265, is amended as provided in section 4.04 of this Revenue Ruling.

.03 Mim. 6293, C. B. 1948-2, 59, is amended as provided in section 8.02 of this Revenue Ruling.

SEC. 15. EFFECTIVE DATE.

The effective date of this Revenue Ruling is May 24, 1954.

¹ Originally issued as IR-Mimeograph No. 54-82, dated May 10, 1954.