IRS headquarters in Washington.

The IRS and the Treasury Department must issue immediate guidance on 39 areas of the Tax Cuts and Jobs Act to clarify “entity structure, retirement, wealth transfer and a vast number of other tax planning issues,” Annette Nellen, the American Institute of Certified Public Accountants’ Tax Executive Committee chairwoman, urged the IRS and Treasury on Monday.

In her letter to David Kautter, assistant secretary for Treasury’s Tax Policy Department, and William Paul, the IRS’ deputy chief counsel, Kellen said that the two entities must shed light on various areas to help taxpayers and practitioners comply with their 2017 tax obligations.

The IRS did not return a call for comment by press time.

Nellen’s letter highlights three areas of particular concern:

  1. Section 199A – Clarity on the definition of a specified service trade or business, the interaction of this section with other Internal Revenue Code sections and the calculation of the section 199A deduction for complex business structures.
  2. Section 481 – General procedural guidance for making accounting method changes in order to comply with the new rules.
  3. Penalty relief for underpayment of taxes – Taxpayers and tax preparers need sufficient time to determine the appropriate withholding and estimated tax payments for businesses, individuals, trusts, estates and other entities that may have a dramatically different tax liability in 2018 or that are impacted by provisions effective for 2017.

Nellen further explained that under Section 199A(d)(2), Deduction for Qualified Business Income, more guidance is needed on the meaning of specified service trade or business as defined in the section “namely, any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees or owners, or any trade or business which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests or commodities.”

(Related: IRS Releases Tax Withholding Tables for 2018)

AICPA’s letter also notes that the two sections that deal with the increase in the estate and gift tax exemption must be clarified to state that when the new gift, estate and generation skipping transfer (GST) tax exemptions sunset after 2025, and the exemption reverts to 2017 law in 2026, any 2018-2025 transaction is not taxable at sunset.

As to the corporate tax rate, permanently set at 21% in the new tax law, clarity is needed on how it applies with respect to a deferred intercompany transaction originating in a taxable year before 2018 and triggered in a taxable year after 2017 (35% or 21%).

Of course, the controversial limitations on deductions for state and local taxes, commonly referred to as SALT, are also spotlighted, specifically the ability for a cash basis taxpayer to preserve the deduction in 2018 (subject to the $10,000 limitation) for 2018 state and local taxes paid in 2017 and found non-deductible in 2017.

Clarification is also needed to the annual election under the state and local deduction Section 266 to capitalize taxes and carrying charges in lieu of deducting the interest, for taxpayers owning real estate.

As the Tax Foundation has noted, some states have already crafted “dubious legislation” to act as workarounds to the $10,000 deductibility limit.

Then there are the governors of New York, New Jersey and Connecticut stating recently that they are forming a coalition to sue the federal government over the state and local deductibility tax caps.

A list of the specific types of assets that qualify as “qualified real property” under the Section 179 dealing with modification of rules for expensing depreciable business assets should also be provided. 

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