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IRS Releases Final Section 199A Regulations Guidance Addresses Various Uncertainties from Proposed Regulations

Friday, February 8, 2019
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Authored by Ed Decker, partner, and Nick Passini, senior manager | Washington National Tax, RSM US LLP

 

The IRS has released final regulations regarding the new 20 percent deduction against qualified business income (commonly called the pass-through or the section 199A deduction). This deduction, effective for tax years beginning after Dec. 31, 2017, affects most pass-through businesses and their owners, so the release of this guidance has been highly anticipated for months.

The regulations build upon proposed regulations published on Aug. 16, 2018, discussed here. While these final regulations are not effective for taxable years ending before their publication in the Federal Register, they make clear that taxpayers have the option for taxable years ending in the calendar year 2018 to rely on these final regulations in their entirety or on the previously proposed regulations in their entirety. Taxpayers could also choose to rely on a well-reasoned interpretation of the statute, pre-enactment legislative history, and related guidance.

These final regulations modify and clarify a variety of issues, including:

An expansion of the aggregation rules, allowing partnerships and S corporations to report multiple trades or businesses on a combined basis

  • A safe harbor clarifying when rental real estate activities rise to the level of a trade or business
  • Confirmation that specified service activities that exceed a threshold will render the entire business a specified service trade or business
  • Examples demonstrating situations where a taxpayer may be operating multiple trades or businesses within a single entity
  • Favorable modifications to the determination of the asset basis used in computing the deduction

Taxpayers should stay tuned for more in-depth analyses on these and other issues in the coming days and weeks. 

 

 

This article contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. 

© 2019 RSM US LLP. All Rights Reserved.

 

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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