IRS releases proposed regulations and notice under Section 199A

August 2018

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Overview

Today the IRS released 184-page proposed regulations under Sections 199A and 643. In addition, the IRS released Notice 2018-64 that contains a proposed Section 199A revenue procedure. The 2017 tax reform act added new Section 199A, which allows a taxpayer other than a corporation to deduct 20% of its ‘combined qualified business income’ from partnerships, S corporations, and sole proprietorships. The deduction, which is available in tax years 2018 through 2025, is a key component of the 2017 act and remains the subject of continuing interest on Capitol Hill.

The preamble to the proposed regulations indicates that guidance is being provided for computational, definitional, and anti-avoidance purposes. The proposed computational and definitional rules under Section 199A have a prospective effective date and are proposed to be effective for tax years ending after the date final regulations are published in the Federal Register. The regulators state that taxpayers may rely on the proposed regulations until the final regulations are effective. In addition, the Section 199A anti-abuse rules in the regulations are proposed to apply to tax years ending after December 22, 2017, the date of enactment of the 2017 tax reform legislation. Finally, the anti-avoidance guidance in proposed Reg. sec. 1.643-1, intended to prevent abuse generally through the use of trusts, are proposed to be effective for tax years ending after the date of publication of the proposed regulations in the Federal Register.

The proposed revenue procedure in Notice 2018-64 provides guidance on methods for calculating W-2 wages for purposes of Section 199A. The revenue procedure is proposed to apply to tax years ending after December 31, 2017; the notice containing the proposed revenue procedure is effective on the date that it is published in the Internal Revenue Bulletin. Until the proposed revenue procedure is finalized, the notice states that taxpayers may use the methods described in the proposed revenue procedure.

PwC will provide a detailed analysis of the proposed Section 199A guidance and the anti-avoidance rules in the Section 643 proposed regulations in the coming days. In addition, we will discuss the guidance in an upcoming Tax Reform Readiness Series webcast. Watch for an email with more information on the webcast, including registration details.

Contact us

George Manousos
Partner – Federal Tax Services, PwC US
Tel: +1 (202) 414 4317
Email

Brad White
Partner, Accounting Method and Fixed Asset Services Leader, PwC US
Tel: +1 (213) 356 6148
Email

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