Article on Trusts and QBI: The New 199A Applied
The Tax Cuts and Jobs Act, passed by Congress on December 20, 2017, by Public Law No. 115-97, and signed into law by President Trump on December 22, 2017, introduced a new Internal Revenue Code (IRC) Section 199A. The new law is effective for tax years beginning January 1, 2018 and sunsets on December 31, 2025. The new rule is designed to reduce taxes on flow-through income from partnerships, sole proprietorships, and S corporations, by allowing the owner to deduct up to twenty percent of the “qualified business income,” subject to various limitations and exceptions. Proposed Treasury Regulations were published in August 2018.
Many trusts own interests in partnerships, limited liability companies, and S corporations. This article examines how trusts may takes advantage of the new rules to potentially receive deductions of up to twenty percent of qualified business income. Part II of this article briefly describes the Proposed Regulations. Part III provides selected definitions, all of which can be found in the Proposed Regulations. Part IV is a mechanical analysis of the deductions for trusts. Part V sets out the rules for aggregation. Part VI highlights certain reporting requirements. Part VII explains the multiple trust rules, which provide an important background for exploring whether a deduction is available. Part VIII concludes with some discussion and thoughts on estate planning with respect to the new rules. Importantly, this article is based largely on the Proposed Regulations. Once the Regulations are finalized, some of the statements and explanations in this article may no longer apply.