Tax Cut and Jobs Act – Guidance needed as Sec. 199A appears “poorly defined”

House Ways and Means Committee ranking member Richard Neal, D-Mass., has asked the Treasury and the IRS for guidance on the tax code’s new passthrough deduction. In a May 1 letter, Neal asked Treasury Secretary Steven Mnuchin and Acting IRS Commissioner David Kautter, for clarifying guidance on Code Sec. 199A.

Passthrough Deduction

The new Code Sec. 199A, enacted under the Tax Cuts and Jobs Act (P.L. 115-97), provides a 20 percent deduction for income from pass-through entities. The deduction is limited by certain factors including business activities, wages paid by the business, and property values.

“There are a number of limitations, exceptions, and poorly defined terms of art that have left taxpayers (and tax advisors) struggling to comply with their tax obligations,” Neal wrote. Neal expressed particular concern with the lack of guidance as it relates to estimated tax payments. “Given the possibility that individuals may have considerably different tax liabilities under the new law, the inability to determine the appropriate estimated tax payment could result in liability for additions to tax and underpayment penalties,” Neal wrote.

Anti-Abuse Measures

Neal also urged Treasury and the IRS to consider implementing anti-abuse measures surrounding the passthrough deduction. Lawmakers are concerned that certain taxpayers will use tax-minimizing strategies if left unchecked, according to Neal. Ultimately, such strategies could lead to an increase in disputes between taxpayers and the IRS, he cautioned.

By Jessica Jeane, Wolters Kluwer News Staff

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