Benyamini, Tax-exempt trusts: New guidance on Sec. 199A deduction, The AICPA Tax Adviser (Nov. 1, 2019)

Nanaz Benyamini has published his article, Tax-exempt trusts: New guidance on Sec. 199A deduction in The AICPA Tax Adviser (Nov. 1, 2019). The Abstract is as follows:

The IRS has posted informal guidance to explain how trusts that file Form 990-T, Exempt Organization Business Income Tax Return, and have unrelated business income, can claim the qualified business income deduction.

The article begins as follows:

It is often overlooked that a tax-exempt trust may be eligible for a qualified business income (QBI) deduction. On April 26, 2019, the IRS posted informal guidance on its website to explain how trusts that file Form 990-T, Exempt Organization Business Income Tax Return, and have unrelated business income (UBI) can claim the deduction (IRS, “Trust — Qualified Business Income Deduction Under Section 199A,” available at http://www.irs.gov).

For tax years beginning in 2018 and through 2025, the law known as the Tax Cuts and Jobs Act, P.L. 115-97, allows eligible taxpayers to claim a new business deduction computed as follows: the lesser of 20% of QBI plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. However, there are certain limitations set by taxable income thresholds. By now, it is widely understood that the deduction is available to individuals with ownership or beneficial interests in relevant passthrough entities (RPEs) such as sole proprietorships, partnerships, S corporations, trusts, and estates. However, nongrantor tax-exempt trusts may be eligible as well, so long as they report UBI on a Form 990-T. The deduction could be used to offset the UBI, thereby reducing the trust’s income tax liability. A nongrantor trust must calculate its QBI and related Sec. 199A deduction at the entity level (Regs. Sec. 1.199A-6(d)(3)(i)).

To see the full article, click Benyamini, Tax-exempt trusts: New guidance on Sec. 199A deduction, The AICPA Tax Adviser (Nov. 1, 2019).

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..

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