IRS guidance still needed on key tax reform issues

As a CPA in tax, you know it’s vital to stay on top of tax reform. That means you’re watching the news coverage. You’re reading the articles. You’ve subscribed to e-News and various news alerts. You’re joining webcasts and taking self-study courses.

But there’s still a lot to learn, and some information just isn’t available yet.

The U.S. saw the most significant overhaul of its tax code in more than three decades at the end of last year. And when the Tax Cuts and Jobs Act was finally signed, it set off a guidance chain reaction at the Internal Revenue Service (IRS).

While processing its typically heavy busy-season workload, the IRS also focused on issuing guidance on several high-priority changes to allow for effective implementation of the new law. The IRS continues to issue news releases, notices, instructions and other forms of informal guidance on the most pressing items.

In the meantime, the AICPA Tax Policy & Advocacy team is advocating for additional guidance and legislative changes on the topics most vital to members and the profession.

We’ve identified areas requiring immediate IRS attention and offered comments to the IRS and Treasury to influence guidance in a way that best serves you. These items affect your business, and we hope to influence any Treasury or IRS guidance in a way that serves you best.

New Qualified Business Income (QBI) deduction is causing planning issues.

The changes to the QBI deduction raise questions regarding cashflow, entity structure and other tax planning issues. As noted in a comment letter on Feb. 21, the AICPA requested guidance on six specific items affecting QBI.

One key issue at stake is defining what activities constitute qualified business income under section 199A. Our position is that the Treasury and the IRS should permit pass-through businesses to calculate QBI based on the activity level rather than the entity level, which would allow a business to segregate its non-qualified trade or business from its qualified business to calculate the deduction. Allowing the separation and aggregation of different functions of the business will benefit CPAs.

Client-related meals are still in question.

On Apr. 2, the AICPA submitted a comment letter to the Treasury and IRS that addresses guidance needed on Sec. 274, the disallowance of entertainment, certain business related meals, and qualified transportation fringe benefit expenses. It’s not clear currently if certain client-related business meals or employer-provided snacks and other food products are still deductible under the statute. Sec. 274 also eliminates the deduction for certain employer-provided transportation fringe benefits.

A sticking point for CPAs is that we don’t know if business meals with current or prospective clients are still 50 percent deductible under Sec. 274. It’s also unclear if a business meal that’s part of an entertainment activity is still deductible. For instance, if a CPA were to take a client to a meal and then to a ballgame — which is clearly entertainment — is the meal still 50 percent deductible? Our position is that if the cost of the meal is separated from the cost of the entertainment, it should remain 50 percent deductible.

Other issues of note

The AICPA identified several technical corrections that are needed to “fix” the new tax law to operate as it was intended. As we see after the passage of most legislation, technical corrections are often needed to eliminate drafting errors and unintended consequences of the law. These items include:

Individuals — charitable contribution deduction, 60 percent limitation (IRC Sec. 170, 461(l))

Individuals — excess business loss limitation for individuals and self-employed (IRC Sec. 461(l), 172)

Trusts and estates — AMT exemption increase (IRC Sec. 55)

Businesses — NOL deduction for fiscal year taxpayers (IRC Sec. 172)

Businesses — bonus depreciation applicable recovery period for real property (IRC Sec. 168)

S corporations — AAA distribution rules (IRC Sec. 1371, 1377)

International — stock attribution rules for CFCs (IRC Sec. 958) and repatriation tax impact on AMT and miscellaneous itemized deductions (IRC Secs. 56, 67, 965(c)(1) and 965(h)(6)(B)

It could take some time for Congress to address the technical corrections and for the Treasury and the IRS to release guidance on the above noted items. The AICPA is in constant contact with the Treasury, IRS and Joint Committee on Taxation to help expedite the process and put the profession first. Visit the Tax Reform Resource Center for the latest news, resources, tools and AICPA Tax Policy and Advocacy comments that you need to stay on top of what’s happening in Washington. We’re there advocating for you.

Kristin Esposito, CPA, MST, Senior Manager – AICPA Tax Policy & Advocacy, Association of International Certified Professional Accountants

Amy Wang, CPA, Senior Manager – AICPA Tax Policy & Advocacy, Association of International Certified Professional Accountants

IRS guidance still needed on key tax reform issues

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