Section 199A Aggregation Rules

Posted on Wed, Jan 30, 2019 ©2021 Drucker & Scaccetti

TCJA-2017By: Lana Goldina, CPA, and Dan Marques, CPA, MT


The infamous Section 199A, also known as “20% pass-through deduction,” is considered one of the most complex areas of the Tax Cuts and Jobs Act of 2017. On Friday, January 18, the IRS issued final regulations on parts of the law. Among the many issues and questions needing clarification under Section 199A is how you can elect to aggregate your trades or businesses to potentially maximize the qualified business income (“QBI”) deduction.


By aggregating their trades or businesses, some may be able to increase the 20% deduction by combining W-2 wages and the unadjusted basis of qualified property. To aggregate, there are five (5) requirements:


  1. The same person or group of persons owns 50% percent or more of each trade or business. The ownership requirement is applied by looking at both direct and indirect ownership using something known as attribution. Attribution is a complex topic we may cover in a future blog.  For the super curious, the final regulations pegged attribution to the provisions of IRC 267(b) or 707(b).
  2. The 50% or more ownership must exist for a majority of the taxable year. The final regulations clarified the “majority of the taxable year” must include the last day of the tax year.
  3. The aggregated trades or businesses must report items within the same taxable year (i.e., one business can’t have a fiscal year and another business have a calendar year).
  4. None of the aggregated trades or businesses can be a specified service trade or businesses (SSTB).
  5. Two of the following three requirements must be satisfied:
    1. The trades or businesses must provide products, property or services that are similar or customarily offered together.
    2. The trades or businesses share facilities or centralized business elements (i.e., accounting, personnel, legal, etc.)
    3. The trades or businesses are operated in coordination or reliance upon one or more businesses in the aggregated group.


An annual election is required disclosing the entities being aggregated.  Despite the annual reporting requirement, the election is irrevocable. This means it can’t be changed from year to year unless there is a material change in circumstances.  However, new entities can be added to the existing group if they meet the above requirements.


The final regulations also clarified that the aggregation rules are applied at the trade or business level, meaning relevant pass-through entities (RPEs) can also make the aggregation election (proposed regulations only allowed individuals to make the election).  If an RPE makes the election, the RPE is subject to the same disclosure requirements outlined above and the individual owners must follow the RPE’s aggregation (i.e., can’t decide to group the RPE items differently).


Notably, aggregation of multiple trades or businesses was not in the original law.  Instead, this option was added via regulations to make it easier for both the IRS and taxpayers to administer and apply the new law.  Aggregation is intended for when a single business is operated across multiple entities for various legal, economic, or other non-tax reasons.  That said, a thorough understanding of the law could lead to planning opportunities.


The 20% pass-through (or QBI) deduction is both intriguing and confusing.  When you add the layer of aggregation, it becomes even more complex. And, complexity is not a street to walk down alone! Consideration of this election should be approached with your tax advisor. The Tax Warriors® at Drucker & Scaccetti are highly adept at cutting through complexity. Call on us with your questions about this area of the new tax law.

Topics: Pass-through entities, 20% deduction, Tax Cuts and Jobs Act of 2017, Section 199A QBI, Final regulations, Attribution, aggregation

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