New Section 199A Regulations - Anti-Abuse Rules re: Complex Trusts
On January 18, 2019, the Treasury released Final Regulations on Section 199A. The Final Regulations retain many of the limitations that were imposed by the Proposed Regulations, but many planning opportunities are still available. These rules continue the position of the Proposed Regulations that complex trusts which are formed or funded for a primary purpose of avoiding income tax under Section 199A will be “disrespected,” and confirm that this means that the $157,500 or $315,000 thresholds will be aggregated with the trust’s grantor or grantors. The Final Regulations also continued the IRS’s decision to implement the multiple trust disallowance of multiple brackets under IRC Section 643(f), but took out much of the detail and the examples that had provided taxpayer guidance and some safe areas of practice that are no longer delineated, and further confirmed the Electing Small Business Trusts will have only one$157,500 amount for both the S corporation stock and non-S corporation stock portions thereto.
The trust rules leave many Section 199A and multiple trust planning avenues open, but a knowledge and understanding of the new rules is necessary.