2018-11: IRC §199A guidance issued by IRS


The IRS issued much-anticipated, and voluminous, guidance on IRC §199A in the form of proposed treasury regulations. We will be reporting on every major provision in detail in upcoming publications, seminars, and webinars. For now, here are some of the highlights of what is included:

  • Industry-specific guidance has been provided on whether a business is a specified service business. Those industries for which specific guidance has been provided include: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services.
  • Regarding the interpretation of the "reputation or skill" of one or more owners or employees, inclusion in "specified services" for certain businesses will be limited to fact patterns in which the individual or business is receiving endorsement or licensing income for the use of the individual's image, voice, name, etc., or receiving appearance fees or income. This is very welcome guidance to small businesses that were afraid that the "reputation or skill" requirement would turn all small businesses into specified service businesses.
  • Schedule E rental income will not qualify for the IRC §199A deduction except in the case of property rented to a related trade or business under common control (the self-rental rules), or if the rental activity fits the definition of "trade or business" under IRC §162 and its regulations.
  • Common-law employers will claim W-2 wages for purposes of calculating the IRC §199A deduction. This means that companies can continue to use third-party payroll companies, such as professional employer organizations (PEOs), without losing out on the IRC §199A deduction.