The US Department of the Treasury and the IRS have released Proposed Regulations on Internal Revenue Code Section 199A, the 20% pass-through deduction designed to provide tax relief to pass-through businesses and proprietorships. The Proposed Regulations provide greater clarity on many important issues, including the ability to aggregate multiple trades and businesses to increase the allowable deduction. They also seek to cut off certain areas of potential abuse, such as conversion from employee to independent contractor and the “crack and pack” strategy to separate portions of business that may be eligible for the deduction from ineligible portions. This update highlights some of the guidance provided by the Proposed Regulations in the places where Section 199A is most unclear or in which the Treasury has been pressed for guidance.
