January 2019

January 2019

Final 199A Regulations Released

On January 18, 2019, Treasury and IRS issued final IRC §199A regulations. Because they were issued in 2019, they are not binding on taxpayers for the 2018 tax year. However, taxpayers may rely on the final rules, in their entirety, or on the proposed regulations issued on August 16, 2018, in their entirety, for taxable years ending in calendar year 2018. The new rules clarify a number of issues, but leave others unresolved. This post provides highlights from the final rules.

No Rules for Agricultural Cooperatives and Patrons

Of particular concerns to producers and their tax professionals, the agencies issued no guidance with respect to § 199A(g), the new and complicated provisions related to agricultural and horticultural cooperatives and their patrons. Rather, they state they “intend to issue a future notice of proposed rulemaking describing proposed rules” for this provision. In the preamble to the proposed regulations, the agencies had stated such guidance would be issued later in 2018.

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To access a replay of a webinar in which we discuss the 199A final regulations (as well as 199A's application to cooperative patrons), click here. TaxPlace subscribers can watch the replay and download the slides. Non-subscribers may download the slides.

IRS Provides a Trade or Business Safe Harbor under 199A for Rental Property

On January 18, 2019, Treasury and IRS issued long-awaited final IRC §199A regulations. In conjunction with these regulations, the agencies also released IRS Notice 2019-07, a proposed revenue procedure to provide a safe harbor under which a rental real estate enterprise will be treated as a trade or business solely for purposes of IRC § 199A. This safe harbor, which includes a 250-hour per year activity requirement, was offered to give taxpayers and their practitioners more certainty with respect to the application of the 199A deduction to some rental real estate activities. The rule does little to help typical landlords who lease Iowa farmland to an unrelated party.

The new § 199A 20 percent deduction is available for “qualified business income” arising from a “qualified trade or business.” Final Treas. Reg. § 1.199A-1(b)(14) defines “trade or business” as a trade or business under IRC § 162, other than the trade or business of performing services as an employee. This is generally the same definition that was set forth in the proposed regulations. In response to many comments, however, the agencies acknowledge that whether an activity rises to the level of an IRC §162 trade or business is inherently a factual question and that taxpayers and practitioners may have difficulties in determining whether a taxpayer’s rental real estate activity is sufficient to meet this standard.

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