The American Institute of Certified Public Accountants (AICPA) has renewed its call for immediate guidance on the new 20%
deduction under the Internal Revenue Code (IRC) Section 199A. The AICPA highlighted questions about qualified business income (QBI) of pass-through income under the Tax Cuts and Jobs Act (P.L. 115-97).
The Tax Cuts and Jobs Act created IRC Section 199A. The
deduction is temporary and begins this year. Generally, qualified
taxpayers may deduct up to 20% of domestic QBI from a partnership, S corporation or sole proprietorship.
Congress put in place a limitation based on wages paid, or on wages paid plus a capital element, among other requirements. Certain service trades or businesses generally may not take advantage of the deduction but there are exceptions. Almost immediately after passage of the new tax law, the AICPA and other tax professional groups urged the IRS to move quickly on guidance. Recently, the National Society of Accountants (NSA) reported that the IRS would issue guidance on IRC Section 199A this summer.
The AICPA identified several areas of immediate concern. They are:
- Definition of IRC 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 IRC Section 199A to an owner of a fiscal year pass-through entity ending in 2018
- Availability of deduction for Electing Small Business Trusts (ESBTs)
The AICPA asked the IRS to describe what activities are included in the definition of a services trade or business. “The guidance should clarify that the definition of the term ‘accounting services’ includes any services associated with the determination of tax liabilities, including preparation, tax planning, cost segregation services, services rendered with respect to tax credits and deductions, and similar consultative services,” the AICPA told the Service.
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