revenue ruling

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A revenue ruling is a published opinion of the Internal Revenue Service (IRS) stating how it would rule on future tax questions based on the same circumstances. These rulings are generally promulgated under the Internal Revenue Code (IRC) § 7805, which allows the Secretary of the Treasury to “prescribe all needful rules and regulations for the enforcement” of the Internal Revenue Code. They stem from a specific question posed to the Treasury concerning a taxpayer’s tax liability. For example, in Revenue Ruling 79–24, the Treasury responds to questions around what activities specifically count as taxable income under IRC § 61(a) and Treasury Regulation 1.62–2, which, with exceptions, recognize “compensation paid other than in cash” as taxable income. The Revenue Ruling lays out a scenario where a housepainter paints a lawyer’s house in exchange for legal services. Under the Revenue Ruling, the fair market value of the services received are recognized as income under IRC § 61(a).

These rulings are of general use to taxpayers, tax preparers, accountants, and attorneys in anticipating tax treatment by the IRS. While useful in anticipating how the IRS may rule on an individual’s tax liability, it should be cautioned that Revenue Rulings apply the law to a specific set of facts; so, the same result may not inure with factual differences. Additionally, there may be interceding statutory, regulatory, or judicial changes which render a prior revenue ruling obsolete.

[Last updated in December of 2020 by the Wex Definitions Team]