QBI Treatment of S-Corp §179

[itonewbie]

A number of users have posted questions in the Community over the last few weeks about Intuit's tax products not reducing QBI reported as Code V on Line 17 of K-1 by the amount of §179 allowed on the shareholder's return with respect to that s corp.

We were told that Intuit's position is that QBI reportable by s corp should be net of §179 and, by the same token, shareholders should not reduce their QBI again based on §179 allowed with respect to that entity. As a compromise, Intuit has since provided (1) an option for 1120S Sch K-1 to not reduce QBI (Code V) by §179 (from Line 11) and (2) an override on F.1040 to indicate the amount of §179 not already included in Code V so that §179 allowed at the individual level will offset QBI from the respective s corp.

We believe the tax positions taken at both the RPE and individual levels by Intuit are incorrect, have had protracted technical discussions with Intuit both on and offline, provided the citations and explanations Intuit requested, and submitted a sample return for your review. We only asked that you respond with the relevant citations and explanation if you believe our understanding or interpretation of the law is incorrect but have not received an update after weeks of discussions and escalation by the moderators.

There are a number of members in the Community who have returns waiting to be finalized, pending a resolution from Intuit. Could Jim and Mike please give us a definitive update on this?

Thanks!

https://accountants-community.intuit.com/questions/1805981-problems-with-the-calc-of-qbi-and-section...

[mdavolio]

Hi,

We have reached out to the IRS to find out how QBI should be reported on Schedule K-1 and have not gotten an answer.  Consequently, we designed our products with flexibility at both the entity level and the individual level.  Also, we found that K-1's received from competitor products were inconsistent in their reporting of QBI being offset by section 179.  In the end, the individual needs to reduce section 179 by QBI.

Here is an exerpt from IRS Publication 535:

Determining your qualified business income. Your QBI includes items of income, gain, deduction, and loss from any trades or businesses (or aggregated trade or business) that are effectively connected with the conduct of a trade or business within the United State. This includes income from partnerships (other than PTPs), S corporations, sole proprietorships, and certain trusts that are included or allowed in determining your taxable income for the year. It also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance, and contributions to qualified retirement plans.

We provide an option at the entity level (partnership and S corporation) to not have QBI reduced by Section 179.  Please refer to the followng screen "Other Schedule K-1 Items".  Towards the bottom of the screen there is a box check for "Exclude section 179 deduction from QBI".  At the individual level within each of the K-1 screens and in the QBI sections, we provide a field that says "Section 179 if not already deducted from QBI".

Thank you,

Mike

[itonewbie]

Hi, Mike,

Thank you for reaching out.  Did you have a chance to review the citiations I provided in the original post?  We discussed at length the seggregation of §179 for s-corp reporting and why that treatment should be consistently applied for purposes of §199A.  Could you please shed some light on how the bifurcating position Intuit defaults to addresses the discreprecy and, from Intuit's perspective, consistent with the spirirt and/or letter of the law?

Thanks again for the support!

[Intuit_Devin · Accepted solution]

I'm not quite sure what you mean by "bifurcating" position. Given that there is inconsistency within industry and even within the IRS itself about how to account for Section 179 and other separately stated expenses in the QBI income amount reported in Box 17 of SCorp K1s (and Box 20 of partnership K1s), we have opted to support both approaches. If we had a magic wand we could wave to get everybody on the same page, we absolutely would. It would make our jobs a lot easier.

But the reality is individuals who receive K1s may receive K1s that do or do not include separately stated items in the QBI income, depending on decisions made by the K1 preparer or possibly the K1s software provider (not all software supports both possibilities), so we accomodate both possibilities. At the entity level, some preparers want to include these separately stated items in the QBI figure, and some prefer to report them in a separate statement. The leading tax industry tax minds are divided on this issue. The IRS has opted not to provide clear instructions on this issue given a lack of consensus among senior IRS officials.

This is the reality, and this is why we support both positions in our software.