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SBLC Sends Comments on Qualified Business Income Deduction Proposed Regulations to IRS

 

Technical Corrections to New Tax Law Could be Made During Lame-Duck Session

In September, the IRS and the Department of Treasury released their eagerly awaited proposed regulations implementing the 20 percent deduction on "qualified business income" that pass-through businesses, including sole proprietorships, partnerships, trusts, and S corporations, can take under the 2017 tax reform law, known as the "Tax Cuts and Jobs Act." The majority of small businesses are organized as pass-throughs meaning that profits are passed on to the owner and reported on his/her individual tax return. The Section 199A deduction, commonly referred to as the pass-through deduction, will be available for tax years beginning after December 31, 2017.

The proposed regulations are intended to ensure that business owners receive the full pass-through deduction on business income up to a $315,000 threshold for married couples and $157,500 for single filers. However, the deduction is more limited for higher income businesses. Importantly for marketers, under the proposed regulations, companies will now be allowed to aggregate pass-through income from multiple sources as single business income.

Earlier last week, in response to the proposed regulations that were released last month, the Small Business Legislative Council (SBLC) submitted comments to the IRS outlining a few concerns with the proposed regulations. First, the SBLC said that it is worried about the overall complexity of the proposed regulations, saying that "while clarity is certainly necessary for businesses to navigate the new 199A regulations, the last thing that small businesses need are more highly complicated rules that they can only navigate with the guidance of outside counsel." Secondly, the SBLC stated that it had concerns with provisions of the proposed regulations related to the definition of a Specified Service Trade or Business, saying it "will further expand the disparity between C-corporations and pass through entities, and run counter to the intent of 199A." PMAA sits on the SBLC's Board of Directors and provides input on tax related issues facing petroleum marketers.

Finally, House Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan (R-FL) announced this week that conversations about technical corrections to the "Tax Cuts and Jobs Act" have continued and he expects that many corrections will be passed into law during the upcoming lame-duck session. Although Rep. Buchanan didn't specifically mention that the bonus depreciation fix will be included in the package of corrections that Congress will soon vote on, it is expected to be included.

The "Tax Cuts and Jobs Act" that was signed into law last December contains a provision in Section 168 that provides retailers with the benefit of 100 percent bonus depreciation for qualified improvement property (QIP) acquired and placed into service after September 27, 2017. However, an error occurred when the final text was drafted that makes retailers ineligible for this benefit. In response, the Qualified Improvement Property Coalition, of which PMAA is a member, has been urging Congress to fix the drafting error.

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