{"id":57215,"date":"2018-12-20t13:44:39","date_gmt":"2018-12-20t18:44:39","guid":{"rendered":"https:\/\/48e130086c.nxcli.net\/?p=57215"},"modified":"2018-12-24t10:08:01","modified_gmt":"2018-12-24t15:08:01","slug":"handling-the-delay-in-199a-regs","status":"publish","type":"post","link":"\/\/www.g005e.com\/2018\/12\/20\/handling-the-delay-in-199a-regs\/","title":{"rendered":"handling the delay in 199a regs"},"content":{"rendered":"

brace for tough conversations, more extensions.<\/strong><\/p>\n

by stephen nelson<\/em><\/p>\n

pretty clearly, the section 199a final regulations won\u2019t appear before dec. 31, 2018. the draft version of the final regulations went to the office of budget and management on dec. 14, 2018. and the review process almost certainly won\u2019t finish in time for the new regulations to appear in the federal register before new year\u2019s eve.<\/p>\n

note: the department of treasury did not designate the final regulations as economically significant. that means omb has 45 days to review the regulations.<\/p>\n

this timing hugely impacts tax accountants preparing returns with qualified business income, the income partially sheltered by the new section 199a deduction.<\/p>\n

note: qualified business income includes sole proprietorship profits, trade or business income earned in an s corporation or partnership, rental income in most cases, reit dividends and then also income from qualified agricultural or horticultural cooperatives. in short, lots of taxpayers earn qualified business income.<\/p>\n

using proposed regulations for 2018 tax returns<\/strong><\/p>\n

without final regulations published before december 31, 2018, the obvious question is this: can tax accountants and taxpayers use the proposed regulations for 2018 tax returns?<\/p>\n

the answer here is \u201cyes but\u2026\u201d<\/p>\n

paragraph 32.1.1.2.2 of the internal revenue manual provides the rule for situations like this:<\/p>\n

taxpayers generally may not rely on proposed regulations for planning purposes, except if there are no applicable final or temporary regulations in force and there is an express statement in the preamble to the proposed regulations that taxpayers may rely on them currently.<\/p>\n

the question, then, becomes do the section 199a proposed regulations include an \u201cexpress statement.\u201d they do. here is that statement from the proposed regulations:<\/p>\n

proposed \u00a7\u00a71.199a-1 through 1.199a-6 generally are proposed to apply to taxable years ending after the date of publication of a treasury decision adopting these rules as final regulations in the federal register.\u00a0 however, taxpayers may rely on the rules set forth in proposed \u00a7\u00a71.199a-1 through 1.199a-6, in their entirety, until the date a treasury decision adopting these regulations as final regulations is published in the federal register.<\/p>\n

in summary, if the final regulations for section 199a don\u2019t appear in the next few days, taxpayers and tax accountants may use the proposed regulations for 2018.<\/p>\n

which of course leads to another terribly tricky question…<\/p>\n

should section 199a proposed regulations be used for 2018?<\/strong><\/p>\n

you can make a strong case both for using the section 199a proposed regulations and waiting for the section 199a final regulations. let me share the case for using the proposed regulations, the case for waiting for the final regulations, and then what i currently think our small cpa firm will do.<\/p>\n

if you have different ideas or constructive criticisms, please feel empowered to post your comments below\u2026<\/p>\n

the case for rolling with the proposed regulations<\/strong><\/p>\n

the case for just using the section 199a proposed regulations goes like this. first, the proposed regulations for many taxpayers work as is. oh, sure, tax practitioners ask questions about a few areas. and the irs received a number of complaints during the review period. but from this cpa\u2019s perspective, we can make the proposed regulations work.<\/p>\n

a second related comment: the treasury describes the draft final regulations as not economically significant. maybe one can assume that means the changes between the proposed regulations and the final regulations lack economic significance? (that makes sense, right?)<\/p>\n

a third comment: many (most?) of your and my clients probably don\u2019t want to delay filing their tax returns to some future uncertain date.<\/p>\n

fourth, finally, deciding to work from the proposed regulations rather than waiting for the final regulations gives cpa firms (as well as taxpayers) some certainty about the timing. you can still plan to send organizers out the week after new year\u2019s day, for example. you can still schedule any final continuing education for early january. you can schedule work to start on a specific date in january.<\/p>\n

the case for waiting for final regulations<\/strong><\/p>\n

while the case for using the proposed regulations sounds alluring, waiting for the final regulations possibly makes more sense.<\/p>\n

first, areas where the proposed regulations seem a little vague (like what constitutes an individual trade or business and when small real estate investors get the deduction) should receive fuller discussions in the final regulations.<\/p>\n

second, by working from the final regulations, taxpayers and their tax accountants won\u2019t need or want to amend \u201csection 199a\u201d returns filed earlier. for example, they won\u2019t need to amend a return because reliance on the proposed regulations led to some error. and as another example, they won\u2019t want to amend because some new bit of the final regulations delivers an attractive benefit. a small harbor of some sort, for example.<\/p>\n

of course, waiting for the final regulations comes with drawbacks.<\/p>\n

waiting means not just waiting for the final regulations but also waiting for tax practitioners to learn the new law. surely, this learning requires at least a few days. and then not every person can stop their work and learn the new law at the same time.<\/p>\n

is a week long enough? i don\u2019t know. that seems short.<\/p>\n

another factor with this last-minute delay? metaphorically, the jet sits on the tarmac, engines running, and burning fuel. firms scheduled to ramp up right after martin luther king jr. weekend, therefore, may find it economically or operationally impractical to simply \u201cburn fuel\u201d while they wait for tax season to \u201ctake off.\u201d<\/p>\n

it\u2019s really tricky, right?<\/p>\n

and then don\u2019t forget this: unless your firm has over-staffed to deal with the significant extra work required by section 199a, you were probably already heading into a jam-packed tax season. can you or your team afford to lose a week at the start of tax season?<\/p>\n

enough hand wringing<\/strong><\/p>\n

firms surely will approach the delay differently. but i think our small firm will need to delay starting work on any \u201csection 199a\u201d tax returns.<\/p>\n

in other words, we\u2019ll start the real work on returns impacted by section 199a (which basically means every return in our practice) until a week or more after the final regulations appear.<\/p>\n

the upshots of this? we will need to extend many more 1120s and 1065 tax returns. tax season won\u2019t \u201cfinish\u201d on april 15. and january may be filled with conversations where we explain to clients why the return they\u2019ve usually expected in february or march instead gets filed in march or april. or, er, later.<\/p>\n","protected":false},"excerpt":{"rendered":"

brace for tough conversations, more extensions.<\/strong>
\nby stephen nelson<\/em><\/p>\n","protected":false},"author":1349,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[2303,3120,3002,1906,2246],"tags":[],"class_list":["post-57215","post","type-post","status-publish","format-standard","hentry","category-tax-season","category-pro-member-exclusive","category-special","category-tax-practice","category-busy-season"],"acf":[],"yoast_head":"\nhandling the delay in 199a regs - 卡塔尔世界杯常规比赛时间<\/title>\n<meta name=\"description\" content=\"actionable intelligence for tax, accounting, and financial professionals\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"\/\/www.g005e.com\/2018\/12\/20\/handling-the-delay-in-199a-regs\/\" \/>\n<meta property=\"og:locale\" content=\"en_us\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"handling the delay in 199a regs - 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