PILLA TALKS TAXES - Featured Article
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AGGREGATING MULTIPLE BUSINESSES UNDER §199A

Will this Reduce the Workload in Figuring the 20% Deduction?

by Daniel J Pilla 

In August the IRS released its proposed regulations for implementing the 20% deduction under new code §199A. I’ve said repeatedly that the Jobs Act is a tax cut but it’s not tax simplification. There’s no better proof of this than the proposed regulations themselves. Keep in mind that the law itself is 12 pages long. I thought that was bad enough. But the regulations are 165 pages long. The preamble alone is 50 pages long. 

And that’s not even the worst of it. The Treasury estimates that businesses will spend 25 million hours per year complying with section 199A. That’s more than one-third the time it took GM to manufacture all the vehicles it sold in the U.S. in 2017. Worse still, the Treasury estimates that the average cost of compliance will be $46/hour. At that, businesses will spend $1,150,000,000 complying with this single code section.

Will “Aggregating” Businesses Reduce the Burden? 

One of the questions that came up during the regulation drafting period is whether the IRS would allow people to “group” their businesses for purposes of §199A. The concept of grouping is used regularly by real estate professionals for calculating the time they spend carrying out their real estate activities under code §469. 

The IRS rejected the idea of allowing grouping under the rules contained in Treas. Reg. §1.469-4 because it deemed them as “not appropriate for determining a trade or business for §199A purposes” (REG-107892-18, Preamble, Explanation of Provisions, §IV.A.51). However, the IRS did recognize that aggregation rules were necessary to prevent people from having to restructure their business operations for tax purposes. In response to this need, the Treasury devised the aggregated trade or business concept (Ibid). 

What is Aggregation?

An aggregated business is two or more businesses that are aggregated pursuant to Prop. Reg. §1.199A-4. The aggregated businesses are then treated as a single business for purposes of determining qualified business income (QBI) under §199A (Prop. Reg. §1.199A-1(b)(1); Prop. Reg. §1.199A-4(a)). Businesses may be aggregated only to the extent provided in Prop. Reg. §1.199A-4, which I explain in detail below.

The Rules for Aggregation 

You may aggregate businesses only when the requirements of Prop. Reg. §1.199A-4(b)(1) are fulfilled. There are six requirements set for the in the regulation. I address them in turn.

This is a portion of an article from the September 2018 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read the full article and rest of the newsletter when they log into their subscription account on their non mobile device.   http://taxhelponline.com/subscriber-login.html

NOTE: Further discussion of this topic is one of the sessions of the upcoming 2018 Taxpayer Defense Conference occurring October 22 & 23, 2018 in Minneapolis Minnesota.