Unit One – Introduction Learning Objectives After completing this Unit, you will be able to: ›
Understand why Congress adopted new §199A of the Internal Revenue Code. ›
I.
Gain an overview the how the §199A deduction is calculated.
Background.
A. The Act. On December 20, 2017, Congress passed Public Law No. 115-97 (the “Act”), titled “An act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” but colloquially known as the “Tax Cuts and Jobs Act.” 1. In the legislative history of the Act, Congress noted that the reduction in the corporate tax rate did not mitigate the high rates of tax imposed on businesses conducted by noncorporate taxpayers in passthrough form or through sole proprietorships. 2. In order to lower rates, Congress introduced new §199A of the Internal Revenue Code, which provides an income tax benefit to investors in non-corporate businesses, i.e., sole proprietorships, partnerships, and S corporations 3. The deduction under § 199A is generally available to individual taxpayers, trusts, and estates that have income from what is termed a “qualified businesses”. 4. The deduction under § 199A is not available to C corporations. B. Proposed Regulations. On August 8, 2018, the IRS issued proposed regulations and a Notice providing guidance on §199A. C. Final Regulations, etc. On January 18, 2019, the IRS issued final regulations (the “Regulations”), a Revenue Procedure, and a Notice providing additional guidance. 1. The final regulations generally apply to taxable years ending after February 8, 2019, the date on which they were published in the Federal Register, but taxpayers may rely on either the proposed regulations in their entirety or the final regulations in their entirety for taxable years ending in 2018. 2
