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What Is a Revenue Ruling?

The International Revenue Service or IRS is an agency of the US federal government that upholds lax laws and collects taxes. As part of their responsibility, the IRS has the implied duty to inform the public of how to pay their taxes and what taxes to pay. Thus, it is in this regard that the IRS hands out revenue rulings.

A revenue ruling is an administrative decision that aims to inform people how to treat certain taxes. These rulings can be published in the Internal Revenue Bulletin and the Federal Register so as to inform everyone of a ruling. Because it can be used as a precedent for other people on how to treat the same taxes, it is necessary to publish and disseminate the information to the public.

The basis of a revenue ruling is on a real, factual situation that is brought to the attention of the IRS by an individual. The IRS then provides an answer to this situation called a revenue ruling. There are two types of revenue ruling. The first is a private letter ruling wherein the decision of the IRS is binding only to the IRS and the individual who brought the matter to the attention of the IRS. The private letter ruling is specific and only applies to the individual who filed it. Ergo, it cannot set a precedent unless the IRS redacts the text to make it generally applicable to all. The second type is a public revenue ruling wherein the decision of the IRS is published in order to inform the public. Because the nature of a public revenue ruling is applicable to all, it can set a precedent for other individuals.

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