TIGTA Releases Report on Code Section 199A Qualified Business Income Deduction

(Parker Tax Publishing April 2019)

The Treasury Inspector General for Tax Administration (TIGTA) released a report in which it reviewed the IRS's implementation of the Code Sec. 199A Qualified Business Income Deduction because of the deduction's complexities and impact on taxpayers. The report notes that, due to the timing of the release of guidance under Code Sec. 199A, the IRS was unable to develop a separate Qualified Business Income Deduction tax form for the 2018 tax year and instead is providing taxpayers with two types of worksheets that may be used to calculate the deduction for 2018 - a complex worksheet and a simplified worksheet. Tax Cuts and Jobs Act - Implementation of the Qualified Business Income Deduction (TIGTA 3/18/19).

On March 18, 2019, the Treasury Inspector General for Tax Administration (TIGTA) released a report titled "Tax Cuts and Jobs Act - Implementation of the Qualified Business Income Deduction." TIGTA prepared this report as part of its overall audit strategy of assessing the IRS's implementation of the Tax Cuts and Jobs Act. TIGTA performed this separate review of the IRS's implementation of the Code Sec. 199A qualified business income deduction because of its complexities and its impact on taxpayers. According to the report, the IRS estimates that almost 23.7 million taxpayers may be eligible to claim the deduction and estimates a reduction in tax from this provision of $27.7 billion in fiscal year 2018.

For the 2018 tax year, the IRS was unable to develop a separate Qualified Business Income Deduction tax form. Instead, the IRS is providing taxpayers with two types of worksheets that may be used to calculate the deduction for 2018 - a complex worksheet and a simplified worksheet.

Practice Tip: The simplified worksheet is for taxpayers whose taxable income does not exceed $157,500 ($315,000 Married Filing Joint) and who are not a patron in a farmers' cooperative and is included in the Form 1040 instructions. The complex worksheet consists of a series of worksheets and can be used by taxpayers with income in excess of $157,500 ($315,000 for Married Filing Joint) and taxpayers who are patrons in a farmers' cooperative. The worksheets assist with complex calculations such as applicable Form W-2 wages and qualified depreciable property limitations, limitations for specified service trades or businesses, and patronage reductions for taxpayers who are members in a cooperative. These worksheets are located in a new chapter that was added to the 2018 IRS Publication 535, Business Expenses.

The Treasury Inspector General's report noted that, when concerns were raised about the lack of a tax form for 2018 filings, IRS management said that it had already considered the risk of not having a tax form and believed that the development of a computational worksheet, in lieu of a new form, was the optimal decision for tax year 2018 filings. According to IRS management, delaying the development of a tax form until the 2019 tax year allows the IRS to gain some experience with the first filing season. The report noted that the Code Sec. 199A proposed regulations were not issued until August 8, 2018, more than three months past the IRS's due date for submitting new tax forms and programming requirements.

For a discussion of the calculation of the qualified business income deduction of Code Sec. 199A, see Parker Tax ¶151,500.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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