TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

TAX CUTS AND JOBS ACT:† IMPLEMENTATION OF THE QUALIFIED BUSINESS INCOME DEDUCTION

Final Report issued on March 18, 2019

Highlights of Reference Number:† 2019-44-022 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The Tax Cuts and Jobs Act of 2017 includes Internal Revenue Code Section 199A, which provides individuals with a new tax deduction for qualified business income.† Section 199A provides a deduction of up to 20 percent for an individualís domestic qualified business income from their taxable income.† The IRS estimates that almost 23.7 million taxpayers may be eligible to claim the deduction.† In addition, the Joint Committee on Taxation estimates a reduction in tax from this provision of $27.7 billion in Fiscal Year 2018 and $47.1 billion in Fiscal Year 2019, and totaling $414.5 billion over Fiscal Years 2018 through 2027.

WHY TIGTA DID THE AUDIT

This review is part of TIGTAís overall audit strategy assessing the IRSís implementation of the Tax Cuts and Jobs Act.† TIGTA performed this separate review of the IRSís implementation of the Section 199A Qualified Business Income Deduction because of its complexities and impact on taxpayers.

WHAT TIGTA FOUND

The IRS took proactive steps to implement the Qualified Business Income Deduction including establishing an implementation team, creating an action plan, and developing a communication strategy.† However, IRS management indicated that due to the timing of the release of guidance, the IRS was unable to develop a tax form for the deduction.† IRS management indicated that delaying the development of a tax form until Tax Year 2019 allowed the IRS to receive comments on the guidance, consider those comments before finalizing the guidance, and gain some experience with the first filing season.† As an alternative, the IRS developed a worksheet to assist taxpayers with calculating the Qualified Business Income Deduction.†

In addition, ***********************************************2********************************************************* ************************************************************2********************************************************* ***************.† IRS management responded that they would like to ensure an appropriate balance between compliance risk and taxpayer burden.† ******************************2******************************** ************************************2*******************************, management plans to develop a post-processing compliance plan.† Near the conclusion of our fieldwork, the IRS prepared a computer programming request ***********************************2******************************************************** ************************************************************2********************************.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS ensure that computer programming ****************2******************** ************************************************************2********************************************************* ************************************************************2********************************************************* *********************************************************2****************, and timely implement the post-processing compliance plan.

IRS management agreed with all three recommendations and plans to take appropriate corrective actions.

Redaction Legend:

2 = Law Enforcement Techniques/ Procedures and Guidelines for Law Enforcement Investigations or Prosecutions

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2019reports/201944022fr.pdf.

 

Phone Number ††/† 202-622-6500

E-mail Address †/TIGTACommunications@tigta.treas.gov

Website†††††† ††††††/http://www.treasury.gov/tigta