Important New 199A Developments: Treasury Official Updates Practitioners with Respect to Separate Books and Records Requirement, Related Party Rules & "Crack and Pack" Complex Trust Strategies
On Thursday, April 4th, Audrey Ellis from Treasury's Office of Tax Policy presented on an ABA Section 199A webinar and said three things that significantly impact our understanding of the 199A landscape. Be sure to join Alan Gassman and Brandon Ketron and Steve Gorin on Thursday April 11th at 3pm for in their exclusive LISI Webinar where they will cover this important development and how it impacts 199A planning.
First, separate books and records may not be required as long as the businesses are “separable.” Here’s a transcript of Audrey’s remarks on the final 199A regulation’s separate books and records requirement:
The language was always intended to be separable, and separable does mean that the trades or business do not actually be, have to be separated as you noted. But the books and records must be separable and this is a concept from law that's existed, well prior to section 199A, separate trades or businesses can't be found though if the books and records are not separable. But if the books and records are separable, then each business must still be considered a separate trade or business under Section 162, and then if there are multiple trades or businesses that exist under Section 162 and one of those trades or businesses is an SSTB, income from the other trader business could still be eligible for the 199A Section.
Second, Audrey indicated that for purposes of applying the Section 267(b) and 707(b) attribution rules, all the relevant rules under Section 267 and 707 will apply, including the constructive ownership rules under Section 267(c).
Third, as sharp planners know, the final 199A regulations take the position that a trust formed or funded with a principal purpose of avoiding or using more than one threshold amount for purposes of calculating the deduction under section 199A will not be respected as a separate trust entity for purposes of determining the threshold amount for purposes of section 199A. In her ABA Webinar, Audrey indicated that income from trusts formed or funded for purposes of avoiding tax under 199A can be aggregated with the grantor even if income is distributed to a beneficiary for purposes of determining whether income exceeds the threshold limitation. She then used an example of a complex trust that was eye-opening.
To learn what this all means and how it will impact your clients during this critical tax filing season, be sure to join Alan Gassman and Brandon Ketron on Thursday April 11th at 3 pm for their exclusive 60-minute LISI Webinar. Simply the "Buy Now' button on this page to register: link
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Alan S. Gassman is a lawyer practicing in Clearwater, Florida with the law firm of Gassman, Crotty & Denicolo, P.A. Alan has a Post-Master's Degree (LL.M.) in taxation from the University of Florida, and is a board-certified trust and estate lawyer. Alan will speak on Creative Planning Using IRC Sections 199A and 1202 at the 44th Annual Notre Dame Tax & Estate Planning Institute in South Bend, Indiana on October 11th and 12th. The brochure on this year's Notre Dame Tax & Estate Planning Institute can be viewed at this link: 44th Annual Notre Dame Tax & Estate Planning Institute. Alan's email address is firstname.lastname@example.org.
Brandon Ketron, J.D., LL.M., CPA, is an associate at the law firm of Gassman, Crotty & Denicolo, P.A. in Clearwater, Florida and practices in the areas of Estate Planning, Tax, and Corporate and Business Law. Brandon attended Stetson University College of Law where he graduated cum laude, and received his LL.M. in Taxation from the University of Florida. He received his undergraduate degree at Roanoke College where he graduated cum laude with a degree in Business Administration and a concentration in both Accounting and Finance. Brandon is also a licensed CPA in the States of Florida and Virginia.