This document has been submitted to the Office of the ...

1 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 proposed 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 [REG-107892-18] RIN 1545-BO71 Qualified Business Income Deduction AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations concerning the deduction for qualified business income under section 199A of the Internal Revenue Code (Code).

2 The regulations will affect individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses. The proposed regulations also contain an anti-avoidance rule under section 643 of the Code to treat multiple trusts as a single - 2 - trust in certain cases. This document also provides notice of a public hearing on these proposed regulations. DATES: Written or electronic comments must be received by [INSERT DATE 45 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. Outlines of topics to be discussed at the public hearing scheduled for October 16, 2018, at 10 must be received by [INSERT DATE 45 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. If no outlines of topics are received by [INSERT DATE 45 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] the public hearing will be cancelled.

3 ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-107892-18), Room 5203, Internal Revenue Service, Box 7604, Ben Franklin Station, Washington, , 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 and 4 to CC:PA:LPD:PR (REG-107892-18), Courier s Desk, Internal Revenue Service, 1111 Constitution Avenue, , Washington, , 20224, or via the Federal eRulemaking Portal at (indicate IRS and REG-107892-18). The public hearing will be held in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Vishal R. Amin, Frank J. Fisher, or Wendy L. Kribell at (202) 317-6850 or Adrienne M. Mikolashek at 202-317-5279; concerning submissions of comments and outlines of topics for the public hearing, Regina Johnson at (202) 317-6901 (not toll-free numbers).

4 SUPPLEMENTARY INFORMATION: Paperwork Reduction Act - 3 - The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 3507(d)). The Department of the Treasury (Treasury Department) and the IRS request comment on the assumptions, methodology, and burden estimates related to this information collection. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE-:CAR:MP:T:T:SP, Washington, DC 20224.

5 Comments on the collection of information should be received by [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. Comments are specifically requested concerning: Whether the proposed collection of information is necessary for the proper performance of the IRS, including whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collection of information; How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

6 - 4 - Details of the estimated collection burden can be found in Section of the Special Analyses section later in this document . The collection of information required by this proposed regulation is in proposed and proposed The collection of information in proposed is required for taxpayers that choose to aggregate two or more trades or businesses. The collection of information in proposed is required for passthrough entities that report section 199A information to their owners or beneficiaries. It is necessary to report the information to the IRS in order to ensure that taxpayers properly report in accordance with the rules of the proposed regulations the correct amount of deduction under section 199A. The collection of information is necessary to ensure tax compliance.

7 The likely respondents are individuals with qualified business income from more than one trade or business as well as most partnerships, S corporations, trusts, and estates that have qualified business income. Estimated total annual reporting burden: 25 million hours. Estimated average annual burden hours per respondent will vary from 30 minutes to 20 hours, depending on individual circumstances, with an estimated average of hours. Estimated number of respondents: 10 million. Estimated annual frequency of responses: annually. Estimated monetized burden: Using the IRS s taxpayer compliance cost estimates, taxpayers who are self-employed with multiple businesses are estimated to have a monetization rate of $39 per hour. Pass-throughs that issue K-1s have a - 5 - monetization rate of $53 per hour.

8 (See Taxpayer compliance Costs for Corporations and Partnerships: A New Look, Contos, et. al. IRS Research Bulletin (2012) p. 5 for a description of the model.) An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103. Background This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under sections 199A and 643 of the Code.

9 I. Section 199A Section 199A was enacted on December 22, 2017, by 11011 of An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, 115-97 (TCJA), and was amended on March 23, 2018, retroactively to January 1, 2018, by 101 of Division T of the Consolidated Appropriations Act, 2018, 115-141, (2018 Act). Section 199A applies to taxable years beginning after 2017 and before 2026. Section 199A provides a deduction of up to 20 percent of income from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate (section 199A deduction). The section 199A deduction - 6 - may be taken by individuals and by some estates and trusts.

10 A section 199A deduction is not available for wage income or for business income earned through a C corporation. For taxpayers whose taxable income exceeds a statutorily-defined amount (threshold amount), section 199A may limit the taxpayer s section 199A deduction based on (i) the type of trade or business engaged in by the taxpayer, (ii) the amount of W-2 wages paid with respect to the trade or business (W-2 wages), and/or (iii) the unadjusted basis immediately after acquisition (UBIA) of qualified property held for use in the trade or business (UBIA of qualified property). These statutory limitations are subject to phase-in rules based upon taxable income above the threshold amount. Section 199A also allows individuals and some trusts and estates (but not corporations) a deduction of up to 20 percent of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, including qualified REIT dividends and qualified PTP income earned through passthrough entities.