A more thorough explanation:

A letter ruling is a written statement issued by the Internal Revenue Service (IRS) to a taxpayer who has made an inquiry about a specific transaction. The letter ruling explains the tax implications of the transaction and provides guidance on how to proceed.

For example, if a taxpayer is considering a complex financial transaction, they may request a letter ruling from the IRS to ensure that they are complying with tax laws and regulations. The IRS will review the details of the transaction and issue a letter ruling that outlines the tax consequences of the transaction.

Another example of a letter ruling might be a request for clarification on how a particular tax law applies to a specific situation. The IRS will review the request and provide a written response that explains how the law applies to the situation.

Letter rulings are important because they provide taxpayers with guidance on how to comply with tax laws and regulations. They also provide a level of certainty and predictability, which can be helpful when making important financial decisions.