During the recent AICPA Partnership Taxation Technical Resource Panel Spring meeting, Friedman’s own Michael Greenwald, MPPM, CPA, partner, chair of the Panel, clarified a key opportunity for taxpayers to leverage the Section 199A 20% pass through deduction.
Among Mike’s invited guests was Holly Porter, IRS Associate Chief Counsel for Passthroughs and Special Industries. Mike asked Holly specifically whether members of an entity that has multiple trade or business activities – some of which are eligible for the deduction and some of which are specified service trades or businesses (“SSTBs”) and, therefore, ineligible – are able to take the deduction on the income from the eligible businesses or if they would need to reorganize into multiple entities – separating the eligible businesses from the ineligible ones – in order to benefit from the deduction.
Holly confirmed that, in the view of the IRS, each trade or business within the entity will be treated separately for Section 199A as long as it has separate or separable books and records. Not only will each be judged independently as to whether it qualifies for the deduction, but each will benefit separately from the de minimis exceptions. Mike asked Holly if the IRS would be explicitly including this position in the final regulations. She demurred but did suggest that they would be open to including clarifying examples in the final regulations. Mike and the AICPA’s 199A task force are presently at work on the examples.
Should you have any questions on this new interpretation or other aspects of tax law, please feel free to contact your Friedman LLP professional.