QBI Deduction and Fiscal Years

The Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17) added a new deduction for business owners (other than for C corporation owners). It is Code section 199A, Qualified business income. The deduction, in very simple terms, is equal to 20% of the individual's qualified business income, unless taxable income is lower than QBI.  If a single person has income over $157,500 or $315,000 if MFJ, then additional limitations come into play.  If the individual has income over these amounts and is in a specified service business, such as being an accountant, CPA or health care professional, they are limited but get no deduction if taxable income is more than $50,000 (or $100,000 if MFJ) above the thresholds. This provision is in effect for 2018 through 2025 and is intended to provide some rate relief because the corporate tax rate was lowered from 35% to 21%.

Section 199A is about 9 pages long in single-space and involves several definitions, limitations and special rules. One of the questions I heard from some practitioners is how it applies to income from, for example, a partnership that is using a fiscal year (rather than a calendar year). Since we don't have any administrative guidance, we need to do our best to see what the statute states and how the legislative committee reports might help in understanding the statute.

To that end, I summarized my interpretation in a short article in the AICPA Tax Adviser - "The Sec. 199A qualified business income deduction and fiscal years," 3/15/18. I hope you'll take a look, and leave a comment.

The AICPA Tax Section sent a letter to Treasury and IRS listing several areas in need of guidance.

What do you think?