IRS fees to rise steeply in February
Prices charged for agency rulings on individual cases will soar.
NEW YORK (CNNMoney.com) - IRS rulings on individual tax matters are about to get much more expensive, in some instances increasing more than 3,000 percent.
Last year, for instance, Uncle Sam charged $95 to issue a ruling on delayed IRA rollovers. Starting next month, the ruling fees on those rollovers will range anywhere from $500 to $3,000, depending on the size of the account, according to guidance provided by the IRS this week.
The fee for other letter rulings will soar from $2,570 to $9,000.
Rulings essentially provide taxpayers with relief from the costly consequences of a given situation. For example, someone about to retire may give his $400,000 401(k) balance to a bank to roll it over into an IRA -- a process that must occur within 60 days in order for the money to remain tax-deferred.
But the bank inadvertently puts the money in a regular, taxable account, which the retiree only discovers months later when meeting with his accountant. Unless that taxpayer gets an IRS ruling saying otherwise, he will have to pay income tax on the full $400,000 because it will be treated as a taxable distribution, said Ed Slott, an expert on IRA and tax matters who publishes the Web site IRAhelp.com.
"The new fee structure will more accurately reflect the costs of processing various applications, ruling requests and opinion letters," the IRS said in a press release at the end of December.
On top of IRS ruling fees, a taxpayer will also pay money -- potentially several thousand dollars -- to an accountant who prepares ruling requests, said Slott, who himself often prepares ruling requests.
He said he doesn't know what it costs the government to issue individual rulings, and says there may be many bureacratic layers and man-hours involved. But, he said, "now we're charging less than the IRS."
Looking at the new fee structure, he suspects for the average individual taxpayer, it may be worth comparing what you'd owe in fees for a ruling with what you would owe if the consequences of your situation played out without a ruling. Not seeking a ruling and letting your situation play out, he said, may end up costing less.
That's what most taxpayers have done, albeit unwittingly since they haven't been aware that they could seek an IRS ruling to provide relief in complicated tax situations, Slott said. He figures for every taxpayer who has applied for a ruling, there are 100,000 taxpayers in a similar situation who haven't.