As most people know, the most complicated aspect of the TCJA was the brand new Section 199A deduction for 20% of Qualified Business Income (QBI). In a perfect example of hasty, sloppy, vague, poorly explained legislation, how this new tax break will work in the real world is a big mystery. In my 43 years in the tax biz, I can’t recall a more poorly defined bit of tax legislation.
Since the TCJA was signed into law in December, there has been an unending stream of articles, books, webinars and seminars on how we tax pros are supposed to calculate and handle this new QBI deduction. To say that there are huge discrepancies between how people have been interpreting this new IRC Section 199A is a massive understatement. Many tax analysts have made the correct assumption that the actual real life application of this new deduction won’t be firmed up for several years, after disputes with IRS over real life tax returns have been adjudicated in court.
The IRS has also been studying this issue and has just today published their first draft of proposed regulations on the QBI deduction. Contrary to popular belief, what IRS thinks about a certain tax matter doesn’t automatically make it indisputable gospel. It is just their opinion and taxpayers and their advisors are free to exercise their own differing opinions if there is some valid logic behind them. With a law as vaguely written as TCJA, there are gigantic opportunities for a slew of different interpretations that will make just as much logical sense as what the IRS has come up with and will in the future.
IRS Press Release: IRS issues proposed regulations on new 20 percent deduction for passthrough businesses
The proposed regulations – 184 page PDF
Kiplinger’s 3-Page FAQs from 7/12/2018 (before the release of IRS proposed regs)
Review of proposed regs from TaxSpeaker (nee Jennings Seminars)
Tax Guru - Ker$tetter Letter 