ASA representatives met last week with top officials from the U.S. Department of the Treasury’s Office of Tax Policy. They presented the association’s position that owners of staffing firms should be eligible for the 20% deduction for qualified business income from “passthrough” businesses such as S corporations, limited liability companies, and sole proprietorships. The deduction is part of the sweeping tax reform legislation signed into law last year.
The ASA delegation was headed by former ASA chairman Jim Essey, chief executive officer of the TemPositions Group of Cos.—an independent staffing firm headquartered in New York City. Essey is a member of the ASA board of directors and chairman of the legal and legislative committee. The meeting was arranged by Miller & Chevalier, the association’s tax counsel. M&C lawyers Marc Gerson and Andrew Howlett attended the meeting, along with ASA general counsel Stephen Dwyer, government affairs counsel Toby Malara, and senior counsel Ed Lenz.
The meeting was positive and constructive. ASA provided key Treasury Department officials with important details on how staffing firms operate. ASA advanced strong arguments in support of owners of staffing firms being eligible for the tax deduction. The officials appeared receptive but understandably were noncommittal at this stage in the regulatory process.
Not All Businesses Can Take the Deduction
Certain businesses are specifically excluded from generating income eligible for the deduction—namely “specified trades or businesses” such as law, accounting, and consulting firms—as well as those businesses whose principal asset is the “reputation or skill” of one or more of its owners or employees. ASA made two primary arguments as to why staffing services should not be covered by these exclusions:
- “Staffing services” is not on the list of businesses specifically excluded as specified trades or businesses
- Clients buy staffing services based on price, availability of talent, and quality of service—not because of the reputation or skill of individual owners or employees
What Can Staffing Firms Expect Next?
The scope of businesses eligible for the new passthrough deduction is uncertain, and determining which businesses will qualify is widely acknowledged as one of the most difficult issues that the Treasury Department faces in implementing the new tax reform law. As a result, proposed regulations are not expected until late summer or early fall. ASA will submit formal comments to the proposed regulations reaffirming its position that the owners of staffing firms are eligible to claim the passthrough deduction.
ASA will be actively engaged throughout the rule-making process and will keep members apprised of all developments. In the interim, owners should rely on their tax advisers in determining whether income from their business is eligible for the deduction.