Legal Definitions - revenue ruling

A revenue ruling is an official public statement issued by the Internal Revenue Service (IRS), the U.S. government agency responsible for tax collection and tax law enforcement. These rulings explain how the IRS interprets and applies specific provisions of the Internal Revenue Code (IRC), which is the body of federal tax law, to a particular set of facts. Essentially, a revenue ruling tells taxpayers how the IRS would likely decide a tax question if faced with the exact same circumstances in the future.

Revenue rulings are typically issued in response to specific questions or scenarios that arise, but once published, they serve as guidance for all taxpayers, tax professionals, and the IRS itself. They help provide clarity and consistency in how tax laws are applied, allowing individuals and businesses to better understand their tax obligations and plan accordingly.

It's important to note that while revenue rulings are highly influential and generally followed by the IRS, they apply to specific facts. If a taxpayer's situation differs significantly from the facts described in the ruling, the outcome might be different. Additionally, new laws, regulations, or court decisions can sometimes supersede or modify a prior revenue ruling, making it obsolete.

• Example 1: Taxability of Digital Rewards Programs

  Imagine a popular online gaming platform that allows users to earn "gems" through gameplay or by watching advertisements. These gems can then be redeemed for real-world items, gift cards, or even cash. The company and its users might be unsure whether these gems, once redeemed, constitute taxable income for the user, and if so, at what point (when earned or when redeemed) and at what value.

  Explanation: The company could request guidance, or the IRS might issue a revenue ruling on its own initiative, clarifying that the fair market value of the goods, gift cards, or cash received upon redemption of such digital rewards is considered taxable income to the user at the time of redemption. This ruling would provide clear instructions for both the gaming platform (for reporting purposes) and the users (for their tax returns), ensuring consistent tax treatment across similar digital rewards programs.

• Example 2: Deductibility of Home Office Expenses for Gig Workers

  Consider a freelance graphic designer who works exclusively from a dedicated office space within their home. They use this space solely for their business, incurring costs like a portion of their rent, utilities, and internet. With the rise of the gig economy, many such individuals wonder about the specific criteria and limitations for deducting these home office expenses.

  Explanation: A revenue ruling could address common questions from independent contractors and gig workers regarding the home office deduction. It might clarify what constitutes "exclusive and regular use" of a home office, how to calculate the deductible portion of shared household expenses, and specific scenarios where the deduction is or isn't allowed (e.g., using a kitchen table occasionally for work versus a dedicated room). This provides valuable guidance for a growing segment of the workforce on how to properly claim this deduction.