SCMV Attorneys Comment on Proposed IRS Regulations Regarding Qualified Business Income Deduction
SCMV shareholder Brian Katusian has led a team of other members of the California Lawyers Association Taxation Section, in preparing and submitting recent comments to the IRS and the Treasury regarding proposed regulations recently issued regarding the landmark 199A Qualified Business Income Deduction (commonly referred to as the new “pass-through deduction”) under Section 199A of the Internal Revenue Code. Brian is the Chair of the Section’s Income & Other Taxes Committee. SCMV associate Katrina Wu, a member of the California Lawyers Association Taxation Section, also participated in the review process of the submission.
Under Section 199A of the Internal Revenue Code, eligible taxpayers may be entitled to a deduction of up to 20 percent of Qualified Business Income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate.
The group’s recommendations include:
- Adopting well-established “controlled group rules” under Section 414 of the Internal Revenue Code, as opposed to creating an entirely new framework for aggregating trades or businesses under 199A as proposed by the IRS in its proposed regulations.
- Providing guidance as to the definition of a “specified service trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees” to ensure consistency between Section 1202 of the Internal Revenue Code (which is expressly incorporated by reference under 199A) and 199A.
- Providing guidance and clarification on the ability of a taxpayer to utilize his or her own W-2 wages for purposes of applying the 199A W-2 wage limitations in the specific context of a taxpayer who is a shareholder-employee of an S corporation.
The comments submitted by the group will be reviewed by the IRS and help shape the final regulations.