RECRUITMENT IN PROCESS

The Taxpayer Advocacy Panel is Actively Recruiting

For more information, go to the Join TAP page or Apply Now

Search

Issue 41382

Including all business income on Sch C

Project Statement: Evaluate clarity and completeness of the guidelines for taking the Qualified Business Income Deduction for rental property.

Goal Statement: The goal of this project is to recommend to the IRS that current references to finalized Notice are reflected in the instructions for taking the Qualified Income Deduction for rental property.

TAP RECOMMENDATION

ID 1747 PUB 535, Qualified Business Income Deduction, page 50, paragraph 2 Determining your qualified trades or businesses. Your qualified trades and businesses include your section 162 trades or businesses, other than trades or businesses conducted through a C corporation, W-2 wages earned as an employee, and specified service trades or businesses.

In general, to be engaged in a trade or business, you must be involved in the activity with continuity and regularity and your primary purpose for engaging in the activity must be for income or profit. If you own an interest in a pass-through entity, the trade or business determination is made at that entity’s level.

The ownership and rental of real property may constitute a trade or business. Notice 2019-38 provides a safe harbor under which rental real estate enterprise will be treated as a trade or business for purposes of the QBI deduction. For more information, on the safe harbor see Notice 2019-38. Rental real estate that does not meet the requirements of the safe harbor may still be treated as a trade or business for purposes of the QBI deduction if it is a section 162 trade or business.

In addition, the rental or licensing of property to a commonly controlled trade or business operated by an individual or a pass-through entity is considered a trade or business under section 199A. Due to the changes finalized regarding the Qualified Business Income Deduction on September 24, 2019, the proper Notice needs to be reflected in the instructions regarding rental property qualifying for the QBID deduction. This ensures taxpayers have the updated reference when making this deduction on their tax return.

IRS Action:Not adopted

ID 1747

Not adopt: The 2018 Pub 535 chapter dealing with QBID was removed for the 2019 revision and can be listed as Resolved Prior to Elevation: 2/21/2020. The 2018 Pub. 535, chapter 13, QBID material was consolidated on Forms 8995 and 8895-A and their instructions.

TAP RECOMMENDATION

ID 1748 2018 Instructions for Schedule C Profit or Loss From Business, Line 1, Page C-5 Enter gross receipts from your trade or business. Include all income you received in your trade or business including amounts properly shown on Forms 1099-MISC. You can find more information in the instructions on the back of the Form 1099-MISC you received. Trying to explain to a senior citizen taxpayer who provided entertainment to assisted living facilities and senior centers that he needed to include ALL his income–not just those reported on 1099-MISCs.

Please consider the following. We believe some IRS instructions addressing Forms 1099 and gross income don’t merely say to include amounts shown on Forms 1099-MISC but, instead, say to include all income received, including but not limited to, Forms 1099-MISC. That way, the taxpayer/reader can’t use the language in the instructions to argue why they only reported income from Forms 1099-MISC (and left out other receipts).

IRS Action:Adopted

ID 1748

We will adopt this suggestion for 2020. The new text will state: “Enter gross receipts from your trade or business, including amounts properly shown on Forms 1099-MISC. You can find more information in the instructions on the back of the Form 1099-MISC you received.”

TAP RECOMMENDATION

ID 1749 2018 Instructions for Schedule C Profit or Loss From Business, Line 1, Page C-5

Enter gross Income from your trade or business. As a technical matter, gross receipts do not equal gross income.

IRS Action:Not adopted

ID 1749

We will not adopt this suggestion. “Gross income” is figured on line 7 of the Sch C. “Gross receipts” is the preferred language for line 1 of Sch C and it conforms to the language used on form 1120 for corporation.