Source: https://www.taxconnections.com/taxblog/what-is-a-specified-service-or-trade-businesssstb/
Timestamp: 2019-04-22 22:37:09+00:00

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What Is A Specified Service Or Trade Business(SSTB)? | TaxConnections is a where to find leading tax experts and tax resources worldwide.
Nevertheless after many hours of banter we ALL left with more questions than answers about SSTBs. Whilst we keep drilling down into a common understanding of these troubled proposed regulations, everyone reading this post is urged to provide their opinions DIRECTLY to the US Treasury.
Information on how to properly render your opinion is at the end of this post. You can also contact me directly and I will see to it that your opinion is heard.
Bottom line is this. If you were inconvenienced at all by the reporting and regulatory environment governing ObamaCare… prepare yourself for some serious head scratching.
As per proposed US Treasury Regulation 107892-18 (released August 8th 2018) governing IRC 199A – Qualified Business Income under the newly enacted Tax Cut & Jobs Act by our esteemed 115th Congress, US taxpayers are now expected to accordingly report ownership of Specified Service Trades or Businesses (SSTB).
Keep in mind if you own an SSTB – that business does not qualify for the new 20% business deduction unless you as the owner meet exceptions to the general rules.
So what on God’s green Earth IS a Specified Service Trade or Business (SSTB)?
If you own, passively or otherwise, a business in any of the above industries you clearly are organized and paid your Washington lobbyists well. You are excused from reading further.
The Code uses several different ‘standards’ to define income for tax purposes.
The Proposed Regulations governing IRC 199A provide that each activity must satisfy IRC’s Section 162’strade or business parameters, which generally requires a business activity to be conducted “regularly and continually” with the primary purpose of making a profit.
This standard could prove problematic for professionals engaging in rental real estate for reasons that I will post about at another time.
If your activity does not rise to the threshold of IRC 162 as a ‘trade or business’ you too are excused from reading further.
This does not include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient.
Adult day care that provides attention but does not administer medication?
Non-emergency medical (aka wheelchair facilitated) transportation to a medical appointment?
Medical transcription or billing services?
Radiologist who reads screens from afar and has no patient interaction?
This is not limited to services requiring state licensure (CPA).
The aim of proposed §1.199A-5(b)(2)(iv) is to capture the common understanding of accounting, which includes tax return and bookkeeping services, even though the provision of such services may not require the same education, training, or mastery of accounting principles as a CPA.
Accounts payable or Billing Services?
This does not include the provision of services by analysts, economists, mathematicians, and statisticians not engaged in analyzing or assessing the financial costs of risk or uncertainty of events.
the provision of services by persons who broadcast or otherwise disseminate video or audio of performing arts to the public.
services that do not require skills unique to the creation of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts.
This does not include the performance of services other than advice and counsel.
It is common for businesses to provide consulting services in connection with the purchase of goods by customers.
a contractor who remodels homes may provide consulting prior to remodeling a kitchen.
Proposed §1.199A-5(c) provides a de minimis rule, under which a trade or business is not an SSTB if less than 10 percent of the gross receipts (5 percent if the gross receipts are greater than $25 million) of the trade or business are attributable to the performance of services in a specified service activity.
What if you hit 11% and are under $25M gross receipts?
Does ALL business become ineligible?
This de minimis rule may not provide sufficient relief for certain trades or business that provide ancillary consulting services.
A trade or business that sells or manufactures goods, and also happens to provide ancillary consulting services to facilitate the sale of those goods (not separately purchased or billed), is not a ‘consulting’ trade or business.
Accordingly, proposed §1.199A-5(b)(2)(vii) provides that the field of consulting does not include consulting that is embedded in, or ancillary to, the sale of goods if there is no separate payment for the consulting services.
The field of athletics is not listed in section 448(d)(2), and there is little guidance on its meaning as used in section 1202(e)(3)(A).
However, athletics has been deemed to be most similar to the field of performing arts.
This does not include the provision of services that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events.
Similarly, the performance of services in the field of athletics does not include broadcasters or otherwise disseminators of video or audio.
acting as the client’s agent in the issuance of securities, and similar services.
This does not include taking deposits or making loans (AKA BANKS)!
Receiving income for endorsing products or services, including your distributive share of income or distributions from an RPE for which you provide endorsement services.
dealing in partnership interests, or commodities (as defined in section 475(e)(2)).
a fee calculated as a percentage of assets under management.
Factors that have been considered relevant to determining whether a person is a trader include the source and type of profit generally sought from engaging in the activity regardless of whether the activity is being provided on behalf of customers or for a taxpayer’s own account.
King v. Commissioner, 89 T.C. 445 (1987).
Loan originators who make negligible sales of the loans are not dealing in securities for purposes of section 199A(d)(2).
SSTB includes any trade or business with 50 percent or more common ownership (directly or indirectly) that provides 80 percent or more of its property or services to an SSTB.
If a trade or business has 50 percent or more common ownership with an SSTB, to the extent that the trade or business provides property or services to the commonly-owned SSTB, the portion of the property or services provided to the SSTB will be treated as an SSTB (meaning the income will be treated as income from an SSTB).
A dentist owns a dental practice and an office building. She rents half the building to the dental practice and half the building to unrelated persons. Under proposed §1.199A-5(c)(2), the renting of half of the building to the dental practice will be treated as an SSTB.
If you own a business (or two…) do know that you really do not want to be a deemed SSTB. But it is not all bad as you will see from the general rules and subsequent ‘exceptions’ to those rules.
Unless an exception applies, if a trade or business is an SSTB, there is no Qualified Business Income (QBI) for deduction purposes.
If a pass-through entity (partnership or S Corporation) provides an SSTB, none of the income from that trade or business flowing to the owner of the entity is QBI REGARDLESS of whether you participate in the activity or is a passive investor. None of the W-2 wages or UBIA of qualified property will be considered for purposes of section 199A either.
…unless the partner’s income on their personal income tax forms is below the defined SSTB threshold of $315,00 when filing status is MFJ ($157,500 for all others).
Individuals with taxable income below the threshold amount ($315,000 MFJ & $157,500 for all others)are not subject to a restriction with respect to SSTBs.
If an individual or trust has taxable income below the threshold amount, the individual or trust is eligible to receive the deduction under section 199A even if a trade or business is an SSTB.
The exclusion of QBI, W-2 wages, and UBIA of qualified property from the computation of the section 199A deduction is subject to a phase-in for individuals with taxable income within the phase-in range.
The application of this phase-in is determined at the individual, trust, or estate level, which may not be where the trade or business operates.
If a partnership or an S corporation operates an SSTB, the application of the threshold does not depend on the partnership or S corporation’s taxable income but rather, the taxable income of the individual partner or shareholder claiming the section 199A deduction.
A Relevant Pass-through Entity (RPE) conducting an SSTB may not know whether the taxable income of any of its equity owners is below the threshold amount of $315,00 when filing status is MFJ ($157,500 for all others).
However, the RPE is best positioned to make the determination as to whether its trade or business is an SSTB.
Reporting rules under proposed §1.199A-6(b)(3)(B) requires each RPE to determine whether it conducts an SSTB and disclose that information to its partners, shareholders, or owners.
With respect to each trade or business, once it is determined that a trade or business is an SSTB, it remains an SSTB and cannot be aggregated with other trades or business.
In the case of a trade or business conducted by an individual, such as a sole proprietorship, disregarded entity, or grantor trust, the determination of whether the business is an SSTB is made by the individual.
There is a de minimis rule, under which a trade or business is not an SSTB merely because it provides ‘some’ specified service activity.
less than 10 percent of the gross receipts of the trade or business is attributable to the performance of services in an SSTB.
For trades or business with gross receipts greater than $25 million (in a taxable year), a trade or business is not an SSTB if less than 5 percent of the gross receipts of the trade or business are attributable to the performance of services in an SSTB.
Case law under section 448 provides that whether a service is performed in a qualifying field under section 448(d)(2) is decided by examining all relevant legislative intent and is not controlled by state licensing laws.
Kraatz & Craig Surveying Inc., v. Commissioner, 134 T.C. 167 (2010).
States often vary in what they require in terms of licensure or certification.
Federal tax law should not treat similarly situated taxpayers differently based on one particular state’s decision that a particular business type requires a license or certification.
Proposed §1.199A-5(b) does not adopt a bright-line licensing rule for purposes of determining whether a trade or business is within a certain field for purposes of section 199A.
Submissions may be delivered via the Federal e-Rulemaking Portal – www.regulations.gov(indicate IRS and REG-107892- 18).
1111 Constitution Avenue, NW, Washington, DC on October 16th 2018 @ 10 AM.
Article Written By John Dundon. Your comments are welcome.

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