Taxpayers Worked Up About PTET Workarounds

The Senate's version of the One Big Beautiful Bill Act (the "Act") was released on June 16^th, following the House's passing of its version of the bill in late May. Among the many tax-related changes in both versions of the Act is the narrowing of the pass-through entity tax ("PTET") workarounds, commonly used by owners of pass-through entities such as partnerships and S corporations, to mitigate the limitation on deductions for state and local taxes ("SALT") in effect since 2017. Although there are differences between the House and Senate versions, some of which are beyond the scope of this article, we provide general background of PTET workarounds and some highlights of the proposals. Changes to the PTET could result in greater taxes to members of "specified service trade or business" ("SSTBs"), which include law and accounting firms and investment partnerships, and is a cause for concern for many taxpayers in high-tax states.