Initial Thoughts on Final 199A(g) Regulations

Today, the IRS issued final 199A(g) Regulations dealing with 199A DPAD from a cooperative and the possible reduction in the 199A(a) 20% deduction for patrons of that cooperative.

Here are our initial thoughts on the Regulations.  Rebecca Smith will likely work up a blog post later on the provisions specific to the cooperative.   However, it is apparent that the 199A(g) DPAD allowed under these rules may in many cases be much smaller than the old 199 DPAD. This post will deal primarily with the patron reduction.

• The final regulations in most cases follow the original proposed regulations with some clarification to certain items.
• It does clarify that when you have negative QBI from patron operations you will simply enter zero for any adjustment.  This may require the form and instructions to be updated since neither are clear on this but the Regulations are very clear.
• The Regulations discussed whether patrons are required to include gain on selling farm equipment, farm program payments, self-rentals, etc. in calculating the patron QBI.  The Regulations essentially punted on this.  Therefore, we are allowed to use a “reasonable” method in either including or excluding these items.
• There is a small adjustment for SSTB income from the cooperative related to payments made by the patron to the cooperative.  I don’t think this is going to apply in many situations.
• Some commentators indicated that qualified payments should be reduced if the cooperative was limited by the 50% of wages paid.  The final regulations does not follow this approach.  

Those are my initial thoughts on the final regulations.

Now for some more thoughts on PPP loans.  The SBA issued some additional guidance today on increasing first draw PPP loans including the provision related to gross income for Schedule F Farmer (page 3 of the notice has the farmer rules).

The notice clarifies that if the SBA has not remitted a forgiveness payment to the lender, the farmer can ask for an increase in their original PPP loan due to the Line 9 Gross Income rule.  If you have applied for forgiveness but the bank has not received the payment from SBA, it would be prudent to meet with your bank ASAP to get an updated loan amount.

Now the timing of when you can meet the rules for “spending” the first draw PPP loan and when you can apply for the second draw PPP loan has not yet been released by the SBA.

Plus, the assumption of farmer SE forgiveness is based on line 9 Gross Income not line 34 net income, but that has not yet been confirmed either.  We would guess much of this information should be released over the next few days.