CPAs Seek Guidance on Pass-Through Deduction From Tax Cuts and Jobs Act
When will the U.S. Internal Revenue Service (IRS) issue guidance on new Internal Revenue Code (IRC) section 199A? That’s the number one question on CPAs’ minds related to the Tax Cuts and Jobs Act.
The answer is soon, according to Acting IRS Commissioner David Kautter. On June 8, when speaking at a tax conference in Charlottesville, 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 proposed regulations (implying they will not address many of the less-urgent points in the initial guidance). He noted that the proposed regulations will likely include general rules, aggregation rules, anti-abuse rules, and the definition of specified services.
Kautter had first predicted at a May tax meeting in Washington that the proposed regulations would be released in July. At that time, he said that the proposed regulations probably would not answer all practitioners’ questions and that public comments would help shape the final regulations.
Under the new law passed by Congress last December, qualified business income (QBI) from many pass-through entities is eligible for a 20 percent deduction, although many basic questions about the provision will remain unanswered until the U.S. Treasury Department and the IRS issue guidance.
The American Institute of CPAs (AICPA) began its push for immediate guidance in February. In a letter (PDF) to Treasury and IRS officials, the AICPA stated, “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 also provided real-life examples of challenges about how the rules may impact our members and their clients.
The AICPA identified six top priorities for QBI guidance and suggested how guidance in those areas should be written.
The six issues are:
- 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,” Edward Karl, CPA, CGMA, AICPA vice president of taxation, said. “We also know how important this area of the law is to our members and their clients,” Karl added.