Tag Archives: physician

Final Section 199A Regulations Provide Little Guidance for Skilled Nursing and Assisted Living Facilities

The final Section 199A regulations, which were promulgated on January 18, 2019, make several clarifications to the rules regarding specified service trades or businesses (“SSTB”). Over certain taxable income thresholds, SSTBs are not eligible for the Section 199A deduction. The performance of services in the field of health is an SSTB and is defined in Section 1.199A-5(b)(2) of the final regulations as “the provision of medical services by individuals, such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, another similar healthcare professionals performing services in their capacity as such.” The operation of health clubs or health spas, payment processing, or the research, testing, manufacture and sales of pharmaceuticals or medical devices are not within the field of health.

Many commentators to the proposed regulations, including Williams Parker, noted that many of the services provided by skilled nursing facilities and assisted living facilities are unrelated to health care, including housing, meals, laundry, security, and socialization activities. Unfortunately, Treasury declined to issue specific guidance as to whether the owners of skilled nursing, assisted living, and similar facilities are performing services within the field of health, and noted that the issue “requires a facts and circumstances inquiry that is beyond the scope of these final regulations.”

However, the final regulations added an example in Section 1.199A-5(b)(3)(ii) of a senior housing facility that is not engaged in the field of health. In the example, the senior housing facility provides its residents with standard domestic services (including housing management and maintenance, meals, laundry, and entertainment), but all medical and health services (including skilled nursing, physical and occupational therapy, speech-language pathology, medications, medical supplies and equipment, and ambulance transportation) are provided through separate professional healthcare organizations. All of the health and medical services are billed directly by the healthcare providers to the senior citizens even though the services are provided at the facility. Unfortunately, the final regulations do not address a scenario where the facility invoices the senior citizens for the health and medical services on behalf of the healthcare providers.

View the final regulations.

This post is one in a series of posts on the 199A regulations. 

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

199A Regulations Address Specified Service Trades or Businesses with Other Business Elements

In a prior blog post, we addressed rules in the proposed regulations for the treatment of a trade or business that is not a specified service trades or business (“SSTB”) but has some relatively small elements that are attributable to the performance of services in a field that would qualify as an SSTB. The topic of this post is the rules for the treatment of an SSTB that has some incidental or relatively small non-SSTB elements, which are contained in Section 1.199A-5(c)(3).

Under these rules, if a non-SSTB has (1) 50% or more common ownership with an SSTB, (2) shares expenses, such as shared wages or overhead expenses, with the SSTB, and (3) gross receipts that are no more than 5% of the total combined (SSTB and non-SSTB) gross receipts, then the non-SSTB will be treated as part of the SSTB for Section 199A purposes. Common ownership is determined by applying the related party rules in Sections 267(b) and 707(b).

The proposed regulations provide an example where a dermatologist provides medical services to patients and also sells skin care products to patients. The same employees and office space are used for the medical services and the sale of skin care products. The gross receipts of the skin care product sales do not exceed 5% of the combined gross receipts. Under the rule, the sale of the skin care products (which is not an SSTB) will be treated as incident to, and part of, the medical service SSTB. Therefore, the qualified business income, w-2 wages, and any unadjusted basis of qualified property attributable to the skin care products business will not be eligible for Section 199A purposes unless the dermatologist is under the taxable income thresholds specified in Section 199A.

The proposed regulations do not address a scenario where the gross receipts of the skin care products business were, for example, 6% of the total combined gross receipts. Presumably, the skin care products business would then be considered a separate trade or business (a non-SSTB) from the dermatology practice, which would be an SSTB. A potential gotcha is for a business that is an SSTB that is entrepreneurial and tries to expand into a business that is not a SSTB. For example, consider a financial services business that starts-up a business to create personal budgeting and retirement software and that uses some of the employees and office space of the financial services business. Unless and until either (1) the gross receipts of the software start-up exceeds 5% of the combined gross receipts or (2) there are no longer any shared expenses, then the software business will be treated as a part of the financial services SSTB.

View the proposed regulations. 

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043