Treasury Regs Clarify 20% Pass-through Income Reduction – Part 6


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In Part 5, we started covering the new changes to the specified service trade or business (SSTB) from the Treasury Regulations.

Why should you care?

In a nutshell, a SSTB has a limited opportunity to take advantage of the 20% pass-through income reduction.

Change #21: Clarification of performing arts SSTB

The definition of “performing arts” means the performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such. The performance of services in the field of performing arts does not include the provision of 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. Similarly, the performance of services in the field of the performing arts does not include the provision of services by persons who broadcast or otherwise disseminate video or audio of performing arts to the public.

Change #22: Clarification of consulting SSTB

The term “performance of services in the field of consulting” means providing professional advice and counsel to clients to assist the client in achieving goals and solving problems. Consulting includes providing advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency and all attempts to influence legislators and other government officials on behalf of a client by lobbyists and other similar professionals performing services in their capacity as such. The performance of services in the field of consulting does not include the performance of services other than advice and counsel. This determination is made based on all the facts and circumstances of a person’s business.

Change #23: Clarification of athletic SSTB

The field of athletics is not listed directly in the IRS Code. There is little guidance on its meaning. However, commenters noted, and the Treasury Department and the IRS agree, that among athletic services are most similar to the field of performing arts. Accordingly, the proposed Treasury Regulations provide that the term “performance of services in the field of athletics” means the performances of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports such as baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing. The performance of services in the field of athletics 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 the provision of services by persons who broadcast or otherwise disseminate video or audio of athletic events to the public.

Change #24: Clarification of financial SSTB

The Treasury Department and the IRS agree with such commenters that this suggests that financial services should be more narrowly interpreted here. The proposed Treasury Regulation limits the definition of financial services to services typically performed by financial advisors and investment bankers and provides that the field of financial services includes the provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings, and raising financial capital by underwriting, or acting as the client’s agent in the issuance of securities, and similar services. This includes services provided by financial advisors, investment bankers, wealth planners, and retirement advisors and other similar professionals, but does not include taking deposits or making loans.

Change #25: Clarification of brokerage services SSTB

The Treasury Regs’ ordinary meaning of “brokerage services” and provides that the field of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities for a commission or fee. This includes services provided by stock brokers and other similar professionals, but does not include services provided by real estate agents and brokers, or insurance agents and brokers.

There is one more article of definitions that we’ll take up again next week and then we’ll go through examples of how all of these clarifications and changes can impact your tax planning.



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