Section 199A Guidance on New Pass-Through Deduction Coming Soon

by PICPA | Jun 18, 2018

When will the Internal Revenue Service (IRS) issue guidance on new Internal Revenue Code Section 199A? That’s the No. 1 question on CPAs’ minds related to the Tax Cuts and Jobs Act.

“This is one of the most-asked-about topics at PICPA events,” says Mike Colgan, PICPA's CEO and executive director. “Everyone is anxious to see the guidance.”

Soon is the answer, according to David Kautter, acting IRS Commissioner. On June 8, 2018, at a tax conference in Charlottesville, Va., Kautter said that the proposed Section 199A regulations could be released “within a couple of weeks.” Kautter also said the IRS is trying to hit the key points with the forthcoming regulations (implying the initial guidance will not address less-urgent points). He noted that the proposed regulations will likely include general rules, aggregation rules, anti-abuse rules, and the definition of specified services. 

At a May tax meeting in Washington, D.C., Kautter had predicted that the proposed regulations would be released in July. At that time, he said that they probably would not answer all practitioners’ questions, and that public comments would help shape the final regulations. 

Under the new tax law passed by Congress last December, qualified business income (QBI) from many pass-through entities is eligible for a 20 percent deduction, but many basic questions about the provision will remain unanswered until the Treasury Department and the IRS issue guidance.  

The AICPA began its push for immediate guidance in February. In a letter to Treasury and IRS officials, the AICPA said, “Taxpayers and practitioners need clarity regarding QBI in order to comply with their 2018 tax obligations and to make informed decisions regarding cash-flow, entity structure, and other tax planning issues.” The AICPA has since reinforced the urgency for guidance in meetings with the IRS and Treasury, and provided real-life examples of challenges about how the rules may impact CPAs and their clients.

The AICPA identified six priorities for QBI guidance, and suggested how guidance in those areas should be written. The six issues are are as follows:

  • Definition of QBI
  • Aggregation method for calculation of QBI of pass-through businesses
  • Deductible amount of QBI for a pass-through entity with business in net loss
  • Qualification of wages paid by an employee leasing company
  • Application of Section 199A to an owner of a fiscal year pass-through entity ending in 2018
  • Availability of deduction for electing small-business trusts

“We offered our suggestions on guidance early in the process, because we believed it would be helpful to IRS and Treasury as they thought through how to draft the proposed regulations,” said Edward Karl, CPA, CGMA, AICPA vice president of taxation.  “We also know how important this area of the law is to our members and their clients.”

Learn More

Related CPE

Understanding Section 199A: The 20% Deduction for Pass-Through Entity Owners and Investors in Real Estate
July 23, Philadelphia  •  Sept. 25, Philadelphia  •  Oct. 19, Cranberry  •  Oct. 19, Harrisburg  •  Oct. 3, Feasterville-Trevose  •  Nov. 14, Harrisburg  •  Nov. 19, Philadelphia  •  Nov. 28, Cranberry  •  Dec. 12, Cranberry  •  Dec.19, Malvern  •  Webcasts - July 23  •  Sept. 25  •  Nov. 19  •  Dec.19

Update on Section 199A: What We Now Know after Tax Season Webinar
Aug. 13  •  Sept. 17  •  Oct. 29  •  Nov. 30

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