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October 8, 2018

Coalition Argues For Tax Parity For Pass Through Businesses

Last week, the Parity for Main Street Employers (PMSE) coalition of national trade groups submitted comments to the U.S. Treasury Department and the Internal Revenue Service in response to the notice of proposed rulemaking on the qualified business income deduction under Section 199A of the 2017 tax reform bill that was signed into law in December 2017.

The coalition commended the Treasury Department for crafting regulations that will help Main Street businesses utilize the deduction for pass-through companies. To improve the rules, however, PMSE recommended Treasury streamline the test for aggregating trades or businesses by dropping the “majority ownership” requirement and eliminating the requirement that all aggregated trades or businesses use the same tax year on their returns. The comments also asked that Treasury amend the proposed rules to treat loss-generating businesses fairly; specifically, if a business’s losses are included in calculations that reduce the 199A deduction, they should also be included in calculations that increase it.

In a statement, coalition Executive Director Chris Smith said, “A robust aggregation approach is essential to ensure that pass-through businesses get the full 199A deduction, regardless of how they are organized.” Smith also argued, “And the deduction is essential for main street employers to move closer to tax parity with publicly traded corporations. However, the majority ownership and taxable year requirements needlessly complicate the rules and would exclude many businesses that should otherwise get the deduction.”

A study by Ernst & Young released this summer by PMSE demonstrates that the Section 199A deduction is essential to maintaining parity between large, public corporations and main street businesses organized as S corporations, partnerships, and sole proprietorships.