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Sec. 199A Qualified Business Income Deduction

IRS Proposed Regulations

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The IRS issued proposed regulations regarding the qualified trade or business income deduction under Sec. 199A of the Tax Cuts and Jobs Act:

The newly released proposed regulations for Sec. 199A include various provisions describing the circumstances when business owners may aggregate their trades or businesses for the qualified business income deduction, which could be beneficial in maximizing the deduction. Although some issues are unresolved, the guidance in Proposed Reg 1.199A-4 specifies the requirements for aggregation, the disclosures required, and how disaggregation is reported.

AICPA initial observations:

  • Multiple business entities will be able to combine into a single unit (aggregation) in order to allow owners to claim the tax deduction.  Aggregation allows for ease of administration and was one of AICPA’s recommendations.
  • Guidance includes anti-abuse rules to address strategies in which firms may attempt to spin off administrative and other services into separate entities.
  • De minimis rules are provided. (If a business has gross receipts of $25 million or less, the rules disregard specified service income (e.g., CPA firm income) if it is less than 10 percent of those gross receipts. For a business with more than $25 million in gross receipts, the 10 percent threshold falls to 5 percent.)