On January 7, 2019 the IRS issued a revised draft version of the publication that returns to the position taken in the proposed regulations. Click here to go to that story.

The draft copy of the §199A section of Publication 535 released by the IRS on December 19, 2018, in describing what is a specified service trade or business has language in it that does not track what was found in the proposed regulations released in August. The issue involves whether “services performed in the field of brokerage services” includes services performed by real estate agents, real estate brokers, insurance agents, etc. or is limited to the brokerage of financial products.

The original Proposed Reg. §1.199A-5(b)(2)(x) provided the following definition for that category:

For purposes of section 199A(d)(2) and paragraph (b)(1)(ix) of this section only, the performance of services in the field of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities (as defined in section 475(c)(2)) for a commission or fee. This includes services provided by stock brokers and other similar professionals, but does not include services provided by real estate agents and brokers, or insurance agents and brokers. (emphasis added)

However, the recently released pages from Publication 535 has the following information on these services:

Brokerage services, including arranging transactions between a buyer and a seller for a commission or fee such as stock brokers, real estate agents and brokers, insurance agents and brokers, (emphasis added) and intellectual property brokers;

The publication specifically includes the categories specifically called out as being excluded in the proposed regulations. The publication also states that intellectual property brokers are included in the category, while the proposed regulations made no mention of this category.

If, in fact, the final regulations reflect the language in the proposed regulations then even if this language is not changed in the publications, real estate agents and brokers and insurance agents and brokers would not face a change of treatment. The regulations would override the publication which would simply be in error.

But one other possibility needs to be taken into account. A few days before the draft publication was released, Treasury sent the final regulations under IRC §199A to the Office of Information and Regulatory Affairs (OIRA) for review prior to publication. Thus, the publication, which otherwise seems to quote much of its definitions in this area word for word from the proposed regulations, may reflect a change that exists in the final regulations we are waiting to see following the OIRA review and final release.

This quirk in the publication was brought to my attention by a Twitter post by Stephen L. Nelson CPA of Seattle that was commented on by Glen Birnbaum, CPA.