Tax Law Insights

The Internal Revenue Service today issued its much-anticipated Proposed Regulations on the new Section 199A 20% deduction for owners of pass-through business entities. This important deduction was created under the 2017 Tax Cuts and Jobs Act, the most significant tax reform legislation in over 30 years.

The Proposed Regulations, embodied primarily in Proposed Treasury Regulations § 1.199A-1 through 6, were announced by the IRS in Announcement IR-2018-162, and are available through the IRS website, www.irs.gov. The IRS issued a related Announcement IR-2018-164, and which provides methods for calculating W-2 wages for purposes of the Section 199A deduction. A helpful "Question and Answer" guide was also posted today by the IRS on its website pertaining to basic questions about the new 20% deduction for pass-through businesses.

The new Proposed Regulations under Section 199A are over 180 pages, and arranged in the following areas:

• Background
• Explanation of Provisions
• Proposed Regulation § 1.199A-1: Operational Rules
  • Defined Terms
  • Computation of the Section 199A deduction for individuals with taxable income below the threshold amount
  • Computation of the Section 199A deduction for individuals with taxable income above the threshold amount
  • Special Rules
• Proposed Regulation § 1.199A-2: Determination of W-2 Wages and the UBIA of Qualified Property
  • W-2 wages attributable to a trade or business
  • The UBIA of qualified property
• Proposed Regulation §1.199A-3: QBI, Qualified REIT Dividends, Qualified PTP Income
  • QBI
  • Qualified REIT dividends and qualified PTP income
• Proposed Regulation §1.199A-4: Aggregation Rules
  • Overview
  • Aggregation Rules
  • Individuals
  • RPEs
  • Reporting and Consistency
• Proposed Regulation §1.199A-5: Specified Service Trade or Business and the Trade or Business of Performing Services as an Employee
  • SSTB
  • Trade or business of performing services as an employee
• Proposed Regulation §1.199A-6: Special Rules for RPEs, PTPs, Trusts, and Estates
  • Computational steps for RPEs and PTPs
  • Application to trusts, estates, and beneficiaries
• Proposed Regulation §1.643(f)-1: Anti-avoidance Rules for Multiple Trusts
• Specific Agricultural or Horticultural Cooperatives
• Proposed Effective/Applicable Dates
• Special and Economic Analysis of Proposed Regulations

Comments to the Proposed Regulations, including outlines of topics to be discussed at the scheduled public hearing on the Proposed Regulations to be held October 16, 2018, must be received by the IRS within 45 days after the date of the publication of the Proposed Regulations in the Federal Register.

There is a substantial amount of interpretive guidance to now be digested and reviewed under these important new Section 199A Proposed Regulation. New blogs on these Proposed Regulations will be coming out shortly!