The AICPA Tax Executive Committee has sent a letter to the Treasury Department and the IRS outlining areas the Institute believes require immediate guidance for IRC §199A added to the law by the Tax Cuts and Jobs Act. The list is not a short one—the summary table at the end of the document shows 29 separate items which require guidance, with six requiring immediate guidance and 23 that will also require guidance, presumably before returns begin to be filed for years that IRC §199A applies to.
The letter breaks the requested guidance into six broad areas for which information is needed. These areas are:
- Definition of section 199A Qualified Business Income
- 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 (ESBTs)
In addition to those six issues, the letter goes on to discuss 23 other broad areas where guidance is needed.
Some of the specific areas for which the AICPA is requesting guidance be issued include:
- Clarification of what is and is not a “specified service business” including:
- Will precedents established under IRC §448 apply to the businesses covered by both the qualified personal service business rules and the specified service business rules
- How to determine if a business is one where principal asset of such trade or business is the reputation or skill of one or more of its employees or owners
- Clarification of whether, or in what circumstance, rental real estate will be a qualified trade or business
- How wages paid by an employee leasing company factor into the W-2 limitation for the qualified business income deduction
- How to determine a single “trade or business,” including indicating whether rules similar to the IRC §469 activity grouping rules would apply
- Provide examples of the mechanics of dealing with losses in IRC §199A, including interactions with other carryover provisions.
A review of this letter is recommended for those involved in helping clients plan under the §199A regime, as it highlights many areas that have some amount of uncertainty regarding how the provision will eventually be applied.