The AICPA Tax Executive Committee has sent Treasury a letter and memorandum outlining guidance that the organization is requesting regarding the Tax Cuts and Jobs Act.
While the memorandum provides a long list of guidance the AICPA deems necessary, the cover letter, signed by Tax Executive Committee Chair Annette Nellen, CPA, CGMA, Esq., points out three areas the AICPA believes require immediate guidance:
In particular, there are three areas of main concern. First, under section 199A, guidance is needed on the definition of specified service trade or business, the interaction of this section with other Code sections and the calculation of the section 199A deduction for complex business structures. Second, for section 481 accounting method changes, general procedural guidance is needed for making accounting method changes in order to comply with the new rules. Finally, penalty relief for underpayment of taxes is needed. Taxpayers and preparers need sufficient time to determine the appropriate withholding and estimated tax payments for businesses, individuals, trusts, estates, and other entities that may have a dramatically different tax liability in 2018 or that are affected by provisions effective for 2017.
At the time this article is written this letter and memorandum were not yet available on the AICPA’s “2018 Tax Advocacy Comment Letters” on its website, though presumably they will be added to the site sometime in the near future.
Note: The letter is now available on the AICPA website.
The memorandum for guidance provides a useful list of “unclear” issues for the various provisions found in the Tax Cuts and Jobs Act that CPAs may find helpful in dealing with attempting to help clients plan with this new law.
For instance, below is the section dealing with items the AICPA believes needs guidance on the Section 199A Qualified Business Income deduction:
14. IRC Section 199A — Deduction for Qualified Business Income (QBI) (TCJA Sec. 11011)
- Guidance is needed on the meaning of specified service trade or business as defined in section 199A(d)(2) namely, any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees or owners, or any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
- The calculation of QBI when flowing through multiple tiered entities.
- The netting computation of losses from one business against gains from another business.
- The effect of existing grouping (such as under section 469) of trades or businesses for purposes of the limitations based on W-2 wages, adjusted basis of assets, and specified service business. For example, if grouping is allowed, will taxpayers have an opportunity to regroup their trades or businesses to take advantage of the deduction?
- Whether wages are determined similar to the concepts provided in Treas. Reg. section 1.199-2(a)(2) (consider wages of the common law employees, regardless of who is responsible for the payment of the wage). Whether a trade or business is defined as an activity within an entity. For example, what if an entity has two clearly separate trades or businesses?
- Whether all similar qualified businesses are aggregated for purposes of the calculation or if each business is evaluated separately. Clarity is needed, for taxpayers with non-qualified business activities, as to whether or not there is a de minimis percentage at which the activity is not excluded, or whether the taxpayer makes separate computations for the personal service activity versus the non-personal service activity.
- Whether the taxpayer may consider a management company an integral part of the operating trade or business (and thus, not a specified business activity) if substantially all of the management company's income is from that other trade or business.
- The qualification of real property rental income as qualified business income (or loss).
- If grouping is allowed, whether taxpayers may treat the rental of real estate to their related C Corporation (e.g., a self-rental) as trade or business income.
- The determination of items effectively connected with a business, e.g., section 1245 gains and losses, retirement plan contributions of partners and sole proprietors, the section 162(l) deduction and one-half of self-employment tax.
- The unadjusted basis of assets expensed under section 179 or subject to bonus depreciation.
- The unadjusted basis of assets held as of January 1, 2018.
- The unadjusted basis of property subject to 743(b) basis adjustments.
- The effect, if any, of the 20% deduction on net investment income tax calculations.