No one wants to make a mistake in dealing with the Internal Revenue Service. But if you think trying to fix a problem with the IRS was bad in the past, you'll soon need to lower your expectations to the level of despair.

In early January, the IRS released its new schedule of fees for getting a ruling that helps a consumer fix a mistake; starting Feb. 1, the cost of even trying to correct a mistake is going to be prohibitive, enough so that a consumer who has made a tax blunder may well find they are better off taking their lumps and paying up.

It's a frightening situation, although the reality is that it only affects a minute portion of the taxpaying public. The key is to make sure it doesn't happen to you.

Here's the background.

When taxpayers make a mistake that they want to correct or want to take a certain kind of action, they make a request to the IRS to rule on what they should do; they are asking for a private-letter ruling, in the hope that getting guidance from the agency will reduce the risk that they wind up with the wrong outcome.

Functionally, for consumers, a private-letter ruling is something you seek when you're in a pickle, when you've made a mistake rolling over your 401(k) savings, handling a distribution from an Individual Retirement Account (IRA).

Luckily, few consumers wind up getting into serious trouble in these ways.

But in its January announcement, the IRS noted that the "dollar amounts for various user fees have been increased to more accurately reflect costs to [use] the service." In plain English: You used to be able to get a private-letter ruling fairly cheaply, but not any more. An average ruling that would have cost you $650 last year will run you $9,000 beginning in February.

And since you're going to want a tax attorney or tax professional helping you through the process, you need to recognize that the nine grand is your cost before you factor in the help of a counselor. Even then, you'll incur the costs with no guarantee that the ruling will go your way.

The reality of the situation is simple: Unless there is an enormous amount of money in play -- literally a few hundred thousand dollars -- a cost-benefit analysis of the situation is likely to come to one conclusion: Pay the tax and call it a day, hopefully educating your friends so that they don't make the same mistake.

"You used to think that you couldn't afford to make a mistake, but now it's really true," says Ed Slott, who publishes a newsletter called Ed Slott's IRA Advisor. "You need a ruling if you make a mistake and it can be corrected, but now it's just more important that you do things right, or that your adviser does everything right."

Slott noted an example so common that the IRS has actually cut its user fees, both the old costs and the new ones.

One of the most common mistakes where taxpayers wind up needing a private ruling involves withdrawing money from a 401(k) with the intention of moving it to an IRA. The transfer must be completed within 60 days, but sometimes isn't; in some cases. the money is simply moved to the wrong account, a blunder which turns the entire transfer into a taxable distribution.

The only way out is asking the IRS for a private-letter ruling that allows for the chance to move the money after the 60-day window has expired.

This problem is so common that the IRS had a bargain rate of $95 for a private-letter ruling; that's now going up to $3,000 for a rollover of $100,000 or more, a deal only by the standards of the higher charges for less-common cases.

Direct rollovers are the way to go to avoid the problem (but they don't completely eliminate all potential mistakes).

Likewise, people who name a trust as IRA beneficiary need to be certain that is how they want to go, because the IRS gets plenty of requests where, after death, the surviving spouse or other beneficiaries decide they don't want the trust. (In many cases, the family is not even aware that the trust was named beneficiary, rather than the spouse.)

The new fees for private letter rulings -- plus costs for the adviser to prepare your request -- will make fixing the problem more costly than the fees paid to the attorney who prepared the trust in the first place.

The moral of the story is clear: If you have never heard of a private-letter ruling before, make sure you won't need one in the future. If you are moving retirement monies around, or taking distributions, make sure you know the rules. If you don't know them enough to feel comfortable, bring in a financial or tax adviser who can make sure you steer clear of trouble; paying their fees will be cheaper than trying to fix things later.

Says Slott: "A lot of people probably didn't know that something like this private-letter-ruling process existed. Now they know it exists, but they can't afford it. And if you can't afford to fix a mistake, you can't afford to make one in the first place."

Click here to visit our Tax Planning page.

Copyright (c) 2006 MarketWatch, Inc.