The IRS should issue immediate guidance in 39 areas affected by P.L. 115-97 (known as the Tax Cuts and Jobs Act), AICPA Tax Executive Committee Chair Annette Nellen said in a letter to the IRS and Treasury on Monday. She called on the IRS to issue immediate guidance to help both taxpayers and tax practitioners.
P.L. 115-97 was enacted Dec. 22 and makes numerous changes to the Internal Revenue Code. Nellen highlighted three areas of main concern:
- The deduction for passthrough income in new Sec. 199A, particularly “the definition of specified service trade or business, the interaction of this section with other Code sections and the calculation of the section 199A deduction for complex business structures”;
- Procedures for making Sec. 481 accounting method changes to comply with the new rules; and
- Penalty relief for underpayment of taxes because “[t]axpayers and preparers need sufficient time to determine the appropriate withholding and estimated tax payments for businesses, individuals, trusts, estates, and other entities that may have a dramatically different tax liability in 2018 or that are affected by provisions effective for 2017.”
Under the Sec. 199A passthrough deduction, several specific items require guidance, according to Nellen:
- The meaning of “specified service trade or business” under Sec. 199A(d)(2);
- The calculation of qualified business income when flowing through to multiple tiered entities;
- How losses from one business are netted against gains from another;
- The effect of existing groupings of trades or businesses for purposes of the limitations based on W-2 wages, adjusted basis of assets, and specified service business;
- Whether wages will be determined in a way that is similar to the concepts provided in Regs. Sec. 1.199-2(a)(2) (consider wages of the common law employees, regardless of who is responsible for the payment of the wage);
- Whether a trade or business is defined as an activity within an entity;
- Whether all similar qualified businesses are aggregated for purposes of the calculation or if each business is evaluated separately;
- Whether the taxpayer may consider a management company an integral part of the operating trade or business (and, thus, not a specified business activity) if substantially all of the management company’s income is from that other trade or business;
- The qualification of real property rental income as qualified business income (or loss);
- If grouping is allowed, whether taxpayers may treat the rental of real estate to their related C corporation (e.g., a self-rental) as trade or business income;
- The determination of items effectively connected with a business;
- The unadjusted basis of assets expensed under Sec. 179 or subject to bonus depreciation;
- The unadjusted basis of assets held as of Jan. 1, 2018;
- The unadjusted basis of property subject to Sec. 743(b) basis adjustments;
- The effect, if any, of the 20% deduction on net investment income tax calculations.
The letter also requested guidance on many other items in the new law, including:
- New Sec. 45S, which creates a credit for employers who pay employees during family or medical leave;
- The new Sec. 59A base-erosion and anti-abuse tax;
- The treatment of reimbursement of moving expenses incurred by an employee when the corresponding reimbursement by the employer to the employee occurs in 2018;
- Transition relief for the modification of the limitation on excessive employee remuneration under Sec. 162(m);
- A definition of “binding contract” as used in Sec. 163(h)(3)(F)(i)(IV) (limiting the mortgage-interest deduction);
- Guidance on the Sec. 163(j) interest deduction limitation as it relates to consolidated returns, on how taxpayers that can elect out make the election, on the grouping of businesses for purposes of the $25 million income cap, and other issues;
- How cash-basis taxpayers can preserve the state and local tax deduction in 2018 (subject to the $10,000 limitation) for 2018 state and local taxes paid in 2017 and found to be nondeductible in 2017;
- The application of the binding contract rules to the 100% expensing of property acquired and placed in service after Sept. 27, 2017, and what the acquisition date for self-constructed property is for bonus depreciation purposes;
- The specific types of assets that qualify as “qualified real property” under Sec. 179;
- Confirm whether S corporations qualify for the Sec. 250 deduction for foreign-derived intangible income and global intangible low-taxed income;
- Transition rules regarding Sec. 263A uniform capitalization rules for taxpayers who meet the $25 million small business definition;
- Transition rules for taxpayers who meet the $25 million small business definition and want to move from the accrual basis to the cash basis of accounting (also, clarify if aggregation of gross receipts of affiliated taxpayers is required in calculating any limitations or exceptions to the general rule); and
- Clarify that when the new gift, estate, and generation-skipping transfer tax exemptions sunset after 2025, and the exemption reverts to 2017 law in 2026, any 2018–2025 transactions will not be taxable at the time of the law’s sunset.
— Alistair M. Nevius (Alistair.Nevius@aicpa-cima.com) is the JofA’s editor-in-chief, tax.
