Treasury And IRS Issue Proposed "Pass-Through Deduction" Regulations

On August 8, 2018, the U.S. Department of the Treasury (the "Treasury") and the Internal Revenue Service (the "IRS") issued proposed regulations regarding the "pass-through deduction" for qualified trade or business income under section 199A of the Internal Revenue Code (the "Proposed Regulations").[1] 

I.   Background

Section 199A provides a deduction of up to 20% for individuals of the income from a domestic business that is operated as a sole proprietorship, or through a partnership, S corporation, trust or estate (the "section 199A deduction"). The section 199A deduction provides a maximum effective rate of 29.6% on an individual's domestic "qualified business income."  Taxpayers with income above $315,000 for married individuals filing jointly are not eligible for the section 199A deduction with respect to income from a specified service, trade or business ("SSTB").[2]  For those taxpayers, the section 199A deduction is also limited based on the amount of