Wednesday, August 22, 2018

New IRS Proposed Tax Rule Unclear for Assisted Living

Lilly Hummel

The Internal Revenue Service (IRS) published a proposed rule that, if left unchanged, leaves unclear the status for assisted living community owners to take full advantage of this year’s federal tax cuts.

The new tax law allows passthrough entities like limited liability corporations, partnerships, S corporations, and sole proprietors to deduct 20% of their "qualified business income." Congress defined qualified business income as that which does not include a “specified service trade or business.” Health care services are considered a specified service trade or business, and therefore health care services cannot be considered qualified business income to take advantage of this deduction.

The proposed rule stipulates that skilled nursing facilities (SNFs) cannot take advantage of some of the tax deductions in the 2017 tax law because of their status as "specified service trade or businesses.” Although the proposed rule does not address assisted living expressly, NCAL’s initial view is that many assisted living communities would avoid being characterized as a "specified service trade or business" either by virtue of the fact that they do not provide "services in the field of health" as defined by the IRS or they provide so relatively little that it triggers the de minimus rule. Ultimately, it would depend on an individual analysis of every assisted living community that would otherwise qualify for the deduction.

AHCA/NCAL CEO and President Mark Parkinson said “[t]he rule is inconsistent with Congressional intent” and that [t]he intent of the law was to provide tax cuts to job creators and those willing to put capital into the economy.” AHCA/NCAL will “submit comments and will forcefully advocate our position” and “go to the Hill and seek legislative relief” if necessary, Parkinson continued.

The rule is part of the regular notice of proposed rulemaking (NPRM) process, is not final, and will become law after stakeholders weigh-in and the IRS codifies it. Comments are due by October 1st.

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