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By Sony Kassam
Provisions of the new tax law have several definitional issues that concern businesses, which can lead to accounting problems, a tax practitioner said.
Tax code Section 199A, a new provision created by the 2017 tax act, intends to provide a significant deduction to individuals and pass-throughs that are engaged in certain kinds of business and trade. But it fails to define the terms “business” and “trade.”
“Companies and taxpayers are seeking guidance as to how to define and narrow that application of trade or business, obviously to apply the statute,” Michael Resnick, an associate at Eversheds Sutherland (US) LLP, told Bloomberg Tax.
See video here: https://www.bna.com/tax-laws-accounting-m57982089497/
Section 199A is “precluded from certain income related to specified service trade or businesses,” Resnick said, and because the definition of “specified service trade or business” in the tax code is extremely broad, “taxpayers are seeking guidance to ensure that they don’t fall in that exclusion, and are in fact able to take advantage of the deduction under 199A.”
Section 162(q) on sexual harassment settlements also fails to define “sexual harassment” and “sexual abuse.” As a result, taxpayers are left unsure on whether a payment applies to one reference or the other, Resnick said Feb. 8 at the American Bar Association Section of Taxation meeting in San Diego.
“A lot of nondisclosure agreements and a lot of settlement payments are made in reference to several different allegations or several different claims,” he said. “The NDAs might reference a host of potential claims that the departing employee might have made,” so clarity and guidance is needed “for taxpayers to properly understand and take note of what payments are no longer deductible with reference to 162(q).”
Resnick also discussed the implementation of Section 163(j) on interest expense limitation and Section 451(c) on the treatment of advance payments.
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