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Final regulations under section 199A (20% deduction), text released by IRS

Final regulations under section 199A, text released

The U.S. Treasury Department and IRS today released a version of the final regulations concerning section 199A—the provision enacted under the December 2017 tax law that allows certain owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20% of their qualified business income. The IRS also released related proposed regulations, a notice containing a proposed revenue procedure, and a revenue procedure, all of which are posted on the IRS website.


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Regulations and IRS guidance

The final regulations initially released by the IRS on January 18, 2019, were replaced by a revised version of the final regulations [PDF 699 KB] (249 pages) on February 1, 2019. This release finalizes regulations that were proposed in August 2018. The final regulations were posted on the IRS website. Because of the partial shutdown of the federal government, it is uncertain when these final regulations will be published in the Federal Register.

Also today, proposed regulations [PDF 124 KB] (39 pages) were released as guidance concerning the deduction for qualified business income under section 199A. The proposed regulations provide guidance on the determination of the section 199A deduction for taxpayers that hold interests in regulated investment companies (RICs), charitable remainder trusts, and split-interest trusts.

The IRS also released an advance version of Notice 2019-07 [PDF 97 KB] that contains a proposed revenue procedure providing a safe harbor under which a rental real estate enterprise will be treated as a trade or business solely for purposes of section 199A and Reg. sections 1.199A-1 through 1.199A-6.

A Treasury Department release explains that the related proposed regulations “provide further certainty for determining the deduction for REIT dividends taxpayers own through mutual funds” and that the proposed revenue procedure in Notice 2019-07 provides the safe harbor so that certain rental real estate enterprises may be treated as a trade or business for purposes of the deduction.

Lastly, the IRS released an advance version of Rev. Proc. 2019-11 [PDF 95 KB] that provides methods for calculating W-2 wages (as defined in section 199A(b)(4) and Reg. section 1.199A-2) for purposes of:

  • Section 199A(b)(2) which for certain taxpayers, provides a limitation based on W-2 wages to the amount of the deduction for qualified business income (QBI)
  • Section 199A(b)(7) which for certain specified agricultural and horticultural cooperative patrons, provides a reduction to the section 199A deduction based on W-2 wages

The purpose of this report is to provide text of the final regulations and of the related proposed regulations and IRS guidance. Analysis of these regulations will be provided in future reports from KPMG.


The new deduction under section 199A was added to the Code by the tax law (Pub. L. No. 115-97) enacted December 22, 2017. The 20% deduction generally is available for qualified business income of certain non-corporate taxpayers (including income from publicly traded partnerships and qualified REIT dividends) for tax years beginning after December 31, 2017. Eligible taxpayers can claim the 20% deduction for the first time on their 2018 federal income tax returns. 

Official versions to be published in Federal Register

The versions of the regulations released by the IRS today include the following statement:

This document will be submitted to the Office of the Federal Register (OFR) for publication. The version … 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. 


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