Is an IT services business considered a SSTB?

[David]

I have an S Corp single shareholder client. Is this business considered an SSTB?

Originally, I thought it would be considered an SSTB because of the consulting aspect and the primary asset being the skill and reputation of the owner. However, reading the definitions in the 199A instructions and research materials, it appears that this business isn't considered a SSTB.

Is my understanding correct?

Thanks.

[BLACK BART]

I don't know, but found this very detailed (too much so; it's nine pages) analysis of SSTBs from an NAEA writer which addresses consulting (see page four). 

Wish we had as good a lobby as those businesses specifically excluded (page one).  Wonder what virtue and value to the country the favored few (estate brokers, property managers, architects, engineers, and bankers) contribute that is worth so much more than others (although I have an idea what the bankers are contributing).

[BLACK BART]

https://www.johnrdundon.com/what-is-a-specified-service-trade-or-business-sstb/

Sorry, I forgot to post the link.

[cbslee]

It depends, I can envision an IT business that is not an SSTB and one that is an SSTB.

What exactly do they do ?

[David]

He fixes clients' computer/server issues. Sets up clients' computers, printers and servers. Also, sells computers, servers, printers, etc. 

[David]

Also, he does advise clients on what systems or servers or computers they need for their business. I would say most of his time is involved in solving computer problems and installing servers and computers.

[David]

1 hour ago, BLACK BART said:

I don't know, but found this very detailed (too much so; it's nine pages) analysis of SSTBs from an NAEA writer which addresses consulting (see page four). 

Wish we had as good a lobby as those businesses specifically excluded (page one).  Wonder what virtue and value to the country the favored few (estate brokers, property managers, architects, engineers, and bankers) contribute that is worth so much more than others (although I have an idea what the bankers are contributing).

Thanks, Black Bart.

Yeah,  I've often wondered why architects seem to get favorable treatment in a lot of tax law areas.

Yes, I have read similar articles and even the IRS information on SSTBs and still am not sure on the IT service business. It appears that consulting is mainly the business coaches, counselors, psychiatrists, etc., isn't it?

My main concern was the skills of the business owner, which may apply to an IT service business. However, the research seems to indicate that the intent of this definition is for celebrities who endorse products.

So I'm leaning toward the thinking that the IT services business is not an SSTB. However, I want to make sure I'm not misreading the information that's out there.

Thanks for your help.

[Yardley CPA]

1 hour ago, BLACK BART said:

https://www.johnrdundon.com/what-is-a-specified-service-trade-or-business-sstb/

Sorry, I forgot to post the link.

Can we pin this site?

[BLACK BART]

34 minutes ago, David said:

...So I'm leaning toward the thinking that the IT services business is not an SSTB. However, I want to make sure I'm not misreading the information that's out there...

Yeah, I read the section and am leaning in your direction too.  I've also been thinking that since SSTB status is such an iffy area and millions of these returns will be questionable; and given that these returns are not being processed by mental giants, almost anything not blatantly wrong will be accepted and never heard from again.

[David]

Hopefully that is the correct assumption. I'd hate for this to backfire on the client when it is my interpretation of the SSTB.

[jklcpa]

2 hours ago, BLACK BART said:

I don't know, but found this very detailed (too much so; it's nine pages) analysis of SSTBs from an NAEA writer which addresses consulting (see page four). 

Wish we had as good a lobby as those businesses specifically excluded (page one).  Wonder what virtue and value to the country the favored few (estate brokers, property managers, architects, engineers, and bankers) contribute that is worth so much more than others (although I have an idea what the bankers are contributing).

 

2 hours ago, BLACK BART said:

https://www.johnrdundon.com/what-is-a-specified-service-trade-or-business-sstb/

Sorry, I forgot to post the link.

@BLACK BART, someone requested that I pin your link which I can do.  Your post made it seem that the link was to a document containing pages that you referred to, but when I click I get a webpage that looks like this EA's blog post.  Is this what you were referring to with pages or is there some other document too?

If this is what you meant to link to, please feel free to post the link and a short description in the pinned post re: QBI at the top of the Gen'l Chat forum.  It's not a locked topic, or I can do it later.

Thanks.

 

[BLACK BART]

48 minutes ago, jklcpa said:

 

@BLACK BART, someone requested that I pin your link which I can do.  Your post made it seem that the link was to a document containing pages that you referred to, but when I click I get a webpage that looks like this EA's blog post.  Is this what you were referring to with pages or is there some other document too?

If this is what you meant to link to, please feel free to post the link and a short description in the pinned post re: QBI at the top of the Gen'l Chat forum.  It's not a locked topic, or I can do it later.

Thanks.

 

Is this what you were referring to with pages - YES (thought I read 9 pages somewhere; guess not.)

 is there some other document too? NO

Thanx.

[Yardley CPA]

2 hours ago, jklcpa said:

 

@BLACK BART, someone requested that I pin your link which I can do.  Your post made it seem that the link was to a document containing pages that you referred to, but when I click I get a webpage that looks like this EA's blog post.  Is this what you were referring to with pages or is there some other document too?

If this is what you meant to link to, please feel free to post the link and a short description in the pinned post re: QBI at the top of the Gen'l Chat forum.  It's not a locked topic, or I can do it later.

Thanks.

 

Hi, JKL...I can understand if you don't want to pin someone's blog.  Totally understand that.  

[jklcpa]

Just now, Yardley CPA said:

Hi, JKL...I can understand if you don't want to pin someone's blog.  Totally understand that.  

It's not a problem and I'll take care of requests like that. I asked for clarification only in case there was a more direct link to an article with pages since that was referenced in BB's post.  I just finished posting in the pinned QBI topic for anyone that may find it helpful.

[SaraEA]

There is another thread that covered this recently.  The IRS has clarified that the businesses that depend on  a person's reputation mean only famous people, like Oprah advertising Weight Watchers or Michael Jordan Nikes.  This from KITCES:

According to the proposed regulations, a business is only considered an SSTB by virtue of the “reputation or skill” provision if, and only if, it generates fees, compensation, or other income via one or more of the following:

• Endorsements of products or services;
• Use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbol associated with the individual’s identity;
• Appearances on radio, television, or other media.

As a result of the IRS’s extremely narrow interpretation of the “reputation or skill” provision in the 199A regulations, the provision has gone from potentially being one of the primary culprits of classifying a business as an SSTB, to being fairly benign, and applicable only to an extremely limited number of “businesses” that are truly built around “celebrity” endorsements, appearances, and the like.

[BLACK BART]

Okay. 

Judy, I guess you can kill that blog post if you want to (unless Yardley objects) since the above (Sara's) effectively renders it null and void.  Besides, I just noticed the date on it was August of last year.

[Yardley CPA]

12 minutes ago, BLACK BART said:

Okay. 

Judy, I guess you can kill that blog post if you want to (unless Yardley objects) since the above (Sara's) effectively renders it null and void.  Besides, I just noticed the date on it was August of last year.

I don't object at all.  Thank you both.  

[grandmabee]

But if they are under the income limit it doesn't matter correct?  this only comes into play if over income otherwise you get the 20% deduction.

[David]

Yes, that's correct.

The TP just got under the wire. That's why I asked the question. Maybe a limited deduction in 2019...

 

[DANRVAN]

per final reg:

(xiv) Meaning of trade or business where the principal asset of such trade or business is the reputation or skill of one or more employees or owners. For purposes of section 199A(d)(2) and paragraph (b)(1)(xiii) of this section only, the term any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners means any trade or business that consists of any of the following (or any combination thereof):

(A) A trade or business in which a person receives fees, compensation, or other income for endorsing products or services,

(B) A trade or business in which a person licenses or receives fees, compensation, or other income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity,

(C) Receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

 

[cbslee]

This is not a final reg

[EricF]

17 minutes ago, cbslee said:

This is not a final reg

Why are you saying this is not a final reg?  The language is from the final regulations (T.D. 9847) released on January 22, 2019 for publication in the Federal Register on February 8, 2019.

[DANRVAN]

35 minutes ago, cbslee said:

This is not a final reg

This document has been submitted to the Office of the Federal Register (OFR) for publication and is currently pending placement on public display at the OFR and publication in the Federal Register. The version of the final rule released today may vary slightly from the published document if minor editorial changes are made during the OFR review process. The document published in the Federal Register will be the official document. [4830-01-p] DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [Treasury Decision XXXX] RIN 1545-BO71 Qualified Business Income Deduction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final Regulations. SUMMARY: This document contains final regulations concerning the deduction for qualified business income under section 199A of the Internal Revenue Code (Code). The regulations will affect individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses. The regulations also contain an antiavoidance rule under section 643 of the Code to treat multiple trusts as a single trust in certain cases, which will affect trusts, their grantors, and beneficiaries. This document also requests additional comments on certain aspects of the deduction.