The Nebraska Department of Revenue has recently issued a new revenue ruling (Rev. Rul. 99-14-1) concerning the public disclosure of the Department’s legal guidance to taxpayers. This ruling creates new opportunities for you or your clients to request authoritative guidance from the Department.
While taxpayers have been requesting private guidance from the Nebraska Department of Revenue for many years, and the Department has often provided this guidance, the Department has been reluctant to release this private guidance to other taxpayers. Because the Department’s employees can face criminal penalties for releasing confidential taxpayer information, the Department has been reluctant to release any documents or correspondence (even redacted versions) which could have led to the release of a taxpayer’s identity or information. This has meant that taxpayers have not been able to see a significant amount of the tax guidance which the Department has issued.
The Department has determined that there are times where multiple taxpayers may benefit from public disclosure of the Department’s interpretation of the tax law in a particular situation. For these circumstances, the Department has announced a new, formal procedure for publishing its responses.
When the Department receives an inquiry where there may be a benefit to publishing the Department’s interpretation of the law, the Department will first decide if the response should be published. The Department’s initial decision on publication will depend upon the public benefit derived from publication as compared to the ability to draft a response that does not disclose confidential taxpayer information. If, in the Department’s opinion, this balancing favors publishing the response, the Department will publish the response as long as the response contains no confidential taxpayer information.
The Department has stated that it expects the circumstances which would justify the public release of guidance to be rare. In most instances, the Department’s replies to taxpayer inquiries will be issued only as private correspondence.
When the Department does issue public guidance, it will be one of three types of responses.
1. General Information Letter (GIL). The Department may issue a GIL when the specific taxpayer is unknown, or when the response that is required is general and provides either a procedure to follow or merely cites the applicable statutes, regulations or rulings. Every GIL will state that the GIL is the Department’s current policy and taxpayers may rely on the Department to follow the principles or procedures described in a GIL until it is rescinded, superseded or made invalid by changes to the statutes or by court decisions. GILs will not name or refer to the identity of the taxpayer who made the original inquiry.
2. Revenue Ruling. The Department may respond to an issue or a taxpayer inquiry with correspondence and then initiate and prepare a revenue ruling that will be published and applicable to all taxpayers. Revenue rulings interpret and apply the law to certain situations, industries or issues. Revenue rulings may address general or multiple situations or issues and often give general guidance to taxpayers regarding new legislation, federal law, policy changes or frequently asked questions. The difference between a GIL and a revenue ruling is that GILs only recite current law while revenue rulings interpret the law and often deal with new situations.
Taxpayers may rely on the Department to follow a revenue ruling until it is rescinded, superseded or reversed by statutory changes or by court decisions.
3. Taxpayer Ruling. Taxpayer rulings are issued by the Department in response to specific taxpayer inquiries concerning the application or interpretation of a tax statute or regulation to a particular fact situation. Taxpayer rulings are different from, and should not be confused with, declaratory orders, which will not be published.
Taxpayer rulings will generally be published within 60 days after they are issued to the requester. Confidential taxpayer information will be redacted from the response. A proposed, redacted version will be prepared by the Department and sent to the requesting taxpayer or representative for comments. Proposals will be exchanged until agreement is reached on what information will be redacted in the published version.
The Department will not issue a taxpayer ruling if a) the question deals with unnamed taxpayers or hypothetical situations; or b) confidential taxpayer information cannot be redacted from the response to the satisfaction of the requester and the Department.
A taxpayer ruling is binding on the Department with regard to the taxpayer who is the subject of the request to the extent the facts recited in the taxpayer ruling are correct and complete and the applicable law remains the same. This means that if the Department determines that the answer provided in a taxpayer ruling later proves to be in error, the Department will waive any penalty and interest. This does not mean that the Department will make a firm commitment as to a particular tax result.
Taxpayers seeking guidance from the Department now have new opportunities to seek the type of ruling which may be most helpful to their situation. If you or a client believe that seeking guidance from the Department may be beneficial, please contact a member of the McGrath North Tax Group to discuss the Department’s procedures in more detail.