When planning and drafting garden-variety transactions, the prudent lawyer makes sure to comply with the Internal Revenue Code, Treasury regulations and IRS’s various pronouncements. Authoritative cases and state laws are also taken into account.
But if the federal tax consequences aren’t clear—or if there is an inkling that the IRS may put the kibosh on a contemplated transaction—Prudence the Dictator says get a favorable private letter ruling before proceeding. That’s not inexpensive. Apart from the lawyer’s fees, the IRS charges a bundle to field ruling requests. However, when the stakes are high, it’s good to have a favorable letter ruling—an insurance policy, so to speak—in your back pocket.
