Find Your Specialist


Contact Us

    Go Back

    Final Regulations Address RIC Shareholders, Suspended Losses

    The IRS has resolved some of the issues left open under proposed passthrough deduction regulations issued last year. Final regulations under Sec. 199A provide guidance on the treatment of previously suspended losses included in qualified business income (QBI) and on the determination of QBI for taxpayers that hold interests in regulated investment companies (RICs), split-interest trusts, and charitable remainder trusts. Proposed rules were issued in early 2019, and the final rules make a few changes to the earlier version.

    Suspended Business Losses

    As the proposed regulations explained, losses or deductions that were previously suspended or disallowed are used in computing QBI in the tax year the losses or deductions become available to use. The final regulations clarify that disallowed excess business losses are included under this rule.

    The final regulations also address how the phase-in rules apply when a taxpayer has a suspended or disallowed loss or deduction from a Specified Service Trade or Business (SSTB). The determination of whether a suspended or disallowed loss or deduction attributable to an SSTB is from a qualified trade or business is made in the year the loss or deduction is incurred. Also, the thresholds for the QBI deduction and phase-out ranges will be applied to suspended and disallowed losses based on the taxpayer’s qualifications for the year they are incurred.


    The final regulations will treat as a single entity any trust or estate that has separate and independent shares for multiple beneficiaries, not only for purposes of applying the QBI deduction thresholds, but also in determining taxable income, net capital gain, net QBI, W-2 wages, unadjusted basis of qualified property, qualified REIT dividends, and qualified PTP income for each trade or business of the trust or estate. This rule prevents split-interest trusts from dividing assets among multiple trusts to circumvent the QBI income threshold.


    The final rules allow a shareholder in a RIC to take a Sec. 199A deduction for qualified REIT dividends received by the RIC. This “conduit” rule treats REIT dividends paid out to RIC shareholders the same way they would be treated if the shareholder received them directly. Despite receiving requests to provide similar conduit treatment for publicly traded partnership (PTP) income earned by a RIC, the IRS did not do so, but indicated in the final rules that it is still considering the issue and will address PTP income in future guidance.

    While the final regulations clear up several points on the QBI deduction, more guidance will be needed on issues put aside by the IRS.

    Related Articles

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled

    Essential cookies enable you to navigate our Site and use certain features, such as accessing secure areas of our Site and using other features of our service that require us to keep track of certain information as you navigate from page to page. Although some of these cookies are “required” to enable certain functionality, you can disable them in the browser, but doing so will limit your ability to use the features supported by such cookies.

    Functionality cookies are cookies that support features of the Site, such as remembering your preferences.

    These cookies collect information about how you use our Site, including which pages you go to most often and if they receive error messages from certain pages. These cookies are only used to improve how our Site functions and performs.

    From time-to-time, we may engage third parties that track individuals who visit our Site. These third parties may track your use of the Site for purposes of providing us with certain marketing automation features (to help us improve our outreach to current and prospective clients) and providing you with targeted advertisements.