AICPA makes recommendations on IRS and Treasury's proposed rules for QBI deduction

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The American Institute of CPAs made recommendations to the U.S. Department of Treasury and the Internal Revenue Service on Monday about the proposed rules regarding the deduction for qualified business income under section 199A of the Internal Revenue Code.

The proposed guidance, issued Aug. 16, 2018, provides rules addressing how the regulation will affect individuals, partnerships, S corporations, trusts and estates engaged in domestic trades or businesses.

In its letter, the AICPA outlined the 11 areas it believes to be the highest priority in needing guidance and included proposed answers. Those areas are:

  • Qualification of rental real estate as a trade or business
  • Modification of the rental property recharacterization rule (Prop. Reg. §1.199A-5(c)(2))
  • Clarification of the de minimis rule in the allocation between specified service trade or business (SSTB) and non-SSTB Activities
  • Clarification on the definition of qualified business income (QBI)
  • Treatment of the ordering rule for sections 465, 469, 704(d), and 1366(d)
  • Interaction of section 199A with section 461(l) for purposes of calculating QBI
  • Treatment of relevant passthrough entities (RPEs)
  • Clarification on the aggregation rules
  • Effect of sections 743(b) and 734(b) basis adjustments on unadjusted basis immediately after acquisition (UBIA) of qualified property
  • Effect of sections 351, 721, and 1031 on UBIA of qualified property and the depreciable period
  • Disclosure of section 199A information when owners of RPEs are below the taxable income threshold

The proposed rules on the qualified business income deduction were issued under REG-107892-18, IRS Notice 2018-64 on “Methods for Calculating W-2 Wages for Purposes of Section 199A,” and IRS Frequently Asked Questions (FAQs) on the “Tax Cuts and Jobs Act, Provision 11011 Section 199A – Deduction for Qualified Business Income.”

The AICPA also included an appendix of other issues it believes impact qualified business income and need guidance.

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Tax deductions