August 9, 2018
Overview of IRS 199A “Pass-Through” Proposed Tax Regulations
On August 8, the IRS issued proposed regulations that would implement and interpret the new Section 199A provisions enacted as part of the tax reform act. Section 199A generally allows eligible owners of “pass-through” entities (sole proprietors, LLC and partnerships for example) to take an extra 20 percent deduction from the income they receive from such entities.
The most significant interpretive issue for Council members was the scope of the “Specified Service Trade or Business” (“SSTB”) exception to 199A eligibility for higher income earners. In a significant win for The Council, the proposed rules exclude insurance agency and brokerage services from the scope of the term “Brokerage Services,” which is one of the core categories of SSTBs under the statute.
“Consulting services,” however, also are included within the scope SSTB activities and they are broadly defined to include most consulting services unless they are ancillary to the purchase of a product and no separate fee is paid for those services. Council pass-through members will need to carefully evaluate the extent to which their revenue may be derived from fees for non-placement-related activities that may arguably fall within the ambit of “consulting services” as defined under the proposed regulations.
Click here for a complete analysis of the proposed rules, including a brief summary of section 199A, and a more-detailed outline of how the proposed regulations address significant issues, prepared by our legal team at Steptoe & Johnson.
Comments on the proposed rules will be due 45 days from the date on which the proposed rules are published in the Federal Register.