Wednesday, March 27, 2019
Craig W. Benson (Bever Dye, Wichita, KS)), Section 199A: A Magic Dance Through the Labyrinth, 58 Washburn L.J. 187 (2019):
Although frequently pitched to the American people as a leveling agent to keep pass through entities competitive with their C corporation counterparts, section 199A 's twenty-percent deduction is far more restrictive than the simple reduction in the C corporation tax bracket to a flat twenty-one percent rate. Section 199A is a needlessly complex labyrinth filled with ambiguous language that opens the unwary taxpayer to possible missteps and an easier to meet accuracy-related penalty for substantial understatement of tax liability. This article aims to inform small businesses and their advisors on how to navigate the section 199A maze, in a manner that maximizes the deduction for qualified business income and highlights areas of ambiguity, so taxpayers have conscious awareness of such ambiguous areas.
After introductory comments in Part I, Part II then provides the background information necessary to understand Section 199A. Part III discusses an overview of the deduction, accuracy-related penalties, and regulatory authority. In Part IV, key definitions of section 199A are examined. Part V combines the key definitions of Part IV to deconstruct the mechanics of the section in determining a taxpayer's section 199A deduction amount. Part VI considers section 199A 's application to trusts and estates. Part VII explores various planning opportunities to maximize a taxpayer's section 199A deduction. Finally, Part VIII warns about the areas of ambiguity in Section 199A.