Advance Determination Ruling - ADR

A decision or ruling issued by the Internal Revenue Service to a taxpayer with regard to a taxation or pricing matter. While determination letters from the IRS usually address transactions that have already occurred, they may also be issued on the tax consequences of proposed transactions, hence the term "advance." Also known as "Advance Pricing Agreement."

Most advance determination rulings concern the tax-exempt status of organizations and employee benefit plans. While companies may prefer to obtain an advance determination ruling before any transaction whose tax aspects are unclear, it may always not be possible from a practical standpoint.

For example, consider a transaction that involves transfer pricing between a U.S. company and its foreign subsidiary. If this transaction is concluded before the ADR is obtained from the IRS, in the event of an adverse ruling, the company may have to adjust or reverse the transaction and also be potentially subject to fines.