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Will a new deduction benefit agency owners?

May 23, 2018
12:25 PM

The U.S. Treasury Department recently announced that it will not issue clarifying rules on the new federal tax law until December. At issue for the agent and broker community is a provision of the new law that creates a section in the individual tax code (26 U.S.C. §199A) allowing for a 20% deduction on “qualified business income” (QBI) for owners and shareholders of pass-through businesses.

The majority of IA&B agencies are organized as pass-through entities, and many should be able to benefit from the new deduction in whole or in part. However, it is currently unclear whether insurance agencies and brokerages will be able to receive the full benefit of this deduction.

The outstanding issue for many member agencies is if the sale and servicing of insurance is considered a “specified service trade or business” in any implementing regulations or guidance on the new law. This is important because the law prohibits an owner or shareholder of a “specified service trade or business” with annual taxable income above $415,000 (joint) and $207,500 (single) from utilizing the new deduction.

The information released by Treasury indicates that it intends to propose three rules to implement Section 199A. The first will deal with anti-abuse provisions, the second rule will provide definitional guidance necessary to compute the deduction, and the third will address computational questions.

Your federal government affairs team – the Big “I” – is working with a coalition of other producer groups to advocate on this issue before the Treasury Department. In April the coalition sent a letter to key Treasury Department officials and had a meeting with the Department. As a follow up from the meeting, the coalition recently sent another letter to the Treasury Department.

The Big “I” believes that Congress did not intend to limit insurance agency owners from receiving the full benefits of the pass-through deduction because Congress specifically excluded the word “insurance” from the definition of a “specified service trade or business” in the new law. Furthermore, interpreting the pass-through provisions of the law in a narrow and exclusionary manner is against the broad public policy goals of the law— to create jobs and grow the economy.

Watch Agent Headlines for updates and analysis in the months ahead.