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Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION?

QBI COMPONENT

Qualified Trades or Businesses

Rental of Real Property (continued)

Note: Once a taxpayer relies on the safe harbor to treat its rental real estate enterprise

as a trade or business, they may not vary from this treatment unless there has been a
significant change in facts and circumstances.

Taxpayers relying on this safe harbor must include a statement attached to their return
saying that the requirements of the safe harbor have been satisfied. The statement
must be signed by the taxpayer or an authorized representative and provide that “Under
penalties of perjury, I (we) declare that I (we) have examined the statement, and , to the

best my (our) knowledge and believe, the statement contains all the relevant facts
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relating to the revenue procedure, and such facts are true, correct and complete.” For
more information see Notice 2019-07.
Services Performed as an Employee Excluded

The trade or business of performing services as an employee is not a trade or business

for purposes of the QBI deduction. Therefore, any amounts reported in box 1 of Form
W-2, other than amounts reported in box 1 where the “Statutory Employee” box in box
13 is checked, are not QBI. Statutory employees are individuals who are not common

law employees (and for this reason are not in the trade or business of performing

services as an employee) but, under IRC § 3121(d)(3), are treated as employees for

purposes of certain employment taxes. These individuals report gross income and
deductions attributable to their trade or business on Form 1040, Schedule C, Profit or

Loss from Business and are eligible for the QBI deduction subject to limitations under

Treas. Reg. § 1.199A-5(d)(1).

Taxpayers who were previously an employee of a business and continue to provide

substantially the same services to that business after they are no longer treated as an

employee, are presumed to be providing services as an employee for purposes of the

QBI deduction for the 3-year period after ceasing to be an employee. Under Treas. Reg.
§ 1.199A-5(d)(3)(ii), taxpayers may rebut this presumption by providing records such as
contracts or partnership agreements that corroborate their status as non-employees

upon notice from the IRS.
May 2019

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