AICPA Requests ‘Immediate Guidance’ from IRS on Pass-Through IncomeJune 7, 2018

The Tax Cuts and Jobs Act of 2017 (TCJA) allows for a 20 percent deduction on qualified business income (QBI) for pass-through entities, as stated in Section 199A of the new Internal Revenue Code.

However, defining “qualified business income” has become somewhat problematic, as certain businesses – including many professional services firms – are excluded from the deduction. In response, the American Institute of CPAs (AICPA) has filed a letter with the Internal Revenue Service (IRS) and the U.S. Department of the Treasury requesting “immediate guidance” on six key concerns:

1. Definition of section 199A QBI
2. Aggregation method for calculation of QBI of pass-through businesses
3. Deductible amount of QBI for a pass-through entity with business in net loss
4. Qualification of wages paid by an employee leasing company
5. Application of section 199A to an owner of a fiscal year pass-through entity ending in 2018
6. Availability of deduction for Electing Small Business Trusts (ESBTs)

“Taxpayers and practitioners need clarity regarding QBI in order to comply with their 2018 tax obligations and to make informed decisions regarding cash-flow, entity structure, and other tax planning issues,” wrote AICPA Tax Executive Committee chair Annette Nellen in the Feb. 21 letter, which included suggested responses from AICPA.

The letter also brought other QBI issues to the IRS’ and Treasury’s attention, including the distinction between a business being identified at the activity level vs. entity level and the definition of “specified service trade.”

At publication of this article, no response from the IRS had been reported. We will publish updates on our website at www.curchin.com and/or in a following newsletter as developments occur.