An observant reader noticed that in our post entitled “What We Still Don’t Know about Section 199A?” that we did not reduce QBI by the DPAD of $5,000.
We have gone back to the post and updated the table to show a reduction in Qualified Business Income (QBI) by the Domestic Production Activities Deduction (DPAD) of $5,000.
However, we continue to get emails and comments why QBI must be reduced by the DPAD from the cooperative listed in Box 6 of the Form 1099-PATR. Remember that QBI must be reduced by any “direct” deduction that may show up on Form 1040 that is attributable to QBI. This includes the SE tax deduction, retirement plan contributions and several other direct deductions. Although the DPAD is not yet listed as one of those direct deductions on the Form 8995-A instructions, the IRS has communicated verbally to us that this will reduce QBI and it is likely that the final instructions will have this deduction listed as a reduction.
The instructions for Farm Income Averaging also indicated that Eligible Farm Income must be reduced by the old Section 199 DPAD. Therefore, even if the final Form 8995-A instructions do not include a requirement to reduce QBI by the DPAD, we already have instructions from the IRS indicating that this is appropriate.
Form 8995-A has not been finalized and many practitioners are wondering if the March 1 farmer filing deadline will be extended. We would normally say that no extension will be granted, however, with the tax extenders included in the year-end budget bill, there is a chance that the IRS may not get all of their computer system updated in time so there is a chance for an extension. However, as with the case last year, we may not know about this until the end of February.
Finally, it appears that many cooperatives across the country are not listing any amounts in Box 7 of Form 1099-PATR. If this is case, we would strongly suggest reaching out to the cooperative and communicate to them the issue with not reporting this amount accurately and timely.
