Concise Summary of New QBI Q&A

April 30, 2019

Written by TaxSpeaker
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Right at the end of tax season the IRS decided to issue more QBI Guidance, some of which contradicts common sense and some of which clarifies what we have been telling you. 
 

Here is a concise summary of the new QBI Q&A items.

 

  • The IRS has released two draft 2019 forms related to the QBI deduction: Form 8995-the Simplified Deduction calculation and Form 8995-A the QBI deduction.

 

  • In late April, 2019 the IRS released FAQ #27-33 to expand on previous guidance and where the IRS discusses the Code Sec. 199A deduction rules with respect to pass-through entities.

 
One of the question-and-answer items that caught tax practitioners (and Taxspeaker!) by surprise was Q&A-33, where the IRS states that if an S corporation shareholder takes the self-employed health insurance deduction for health insurance premiums paid by an S corporation for greater-than-2-percent shareholders, that deduction reduces qualified business income (QBI). The IRS notes that the self-employed health insurance deduction under Code Sec. 162(l) is considered attributable to a trade or business for purposes of Code Sec. 199A and will be a deduction in determining QBI. The IRS goes on to say that this "may result in QBI being reduced at both the entity and the shareholder level."
 
Taxspeaker disagrees with the IRS’ holding on this deduction and we also note that an IRS FAQ is not considered a legal authority. Preparers who disagree with the IRS’s position of double penalty on S corporation shareholders may consider disclosing this fact on the return.
 

  • Other Q&A previously or concurrently issued (#29) reduces K-1 QBI by amounts deducted at the 1040 level for things like unreimbursed partnership expenses, business interest, etc.

 

Q&A #22 states that statutory employees qualify for the QBI deduction and #20 states that material participation is not required to qualify for the deduction.

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