On Aug. 8, the United States Internal Revenue Service (IRS) and Department of the Treasury released proposed regulations (the Proposed Regulations) on the deduction pursuant to Section 199A of the Internal Revenue Code of 1986, as amended (the Code), for income from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate (the Section 199A Deduction), which was added to the Code as part of the recently enacted tax legislation known as the Tax Cuts and Jobs Act (the Tax Act). The Proposed Regulations generally include rules that provide operational guidance on
- the meaning of “trade or business” for determining qualified business income eligible for the Section 199A Deduction,
- the meaning of “specified service trade or business” and certain categories of specified service trades or businesses, including an anti-abuse rule addressing the separation of certain businesses from specified service trades or businesses,
- the aggregation of qualified business income with respect to multiple trades or businesses of a single taxpayer,
- the calculation of the limitation based on W-2 wages and tangible depreciable assets,
- the treatment of real estate investment trust (REIT) dividends and publicly traded partnership income,
- considerations relevant to entities treated as partnerships for tax purposes,
- the computation of the Section 199A Deduction, and
- special rules that certain entities, including trusts and estates, are required to follow for purposes of calculating the Section 199A Deduction of the entity or its owners.
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