Notice 2019-27

This notice (Notice) contains a proposed revenue procedure that provides computational guidance on methods and appropriate sources of data for calculating W-2 wages for purposes of section 199A(g) of the Internal Revenue Code and proposed §§1.199A-8 through 1.199A-12 of the Income Tax Regulations (26 CFR part 1), which are contained in a notice of proposed rulemaking (REG-118425-18) being published contemporaneously with this Notice. Specifically, this Notice provides three methods for calculating W-2 wages for purposes of section 199A(g)(1)(B)(i), which limits the amount of the deduction available to specified agricultural or horticultural cooperatives (Specified Cooperatives) under section 199A(g)(1)(A) to 50 percent of the Specified Cooperative’s W-2 wages for the taxable year. The guidance contained in this notice is necessary because changes may be made to the underlying Form W-2, Wage and Tax Statement) on a more frequent basis than updates to the regulations under section 199A(g). The three methods in this Notice are substantially similar to the methods provided in Rev. Proc. 2006-47, 2006-2 C.B. 869, used to calculate W-2 wages for purposes of the section 199 deduction and provided in Rev. Proc. 2019-11, 2019-09 I.R.B. 742, used to calculate W-2 wages for purposes of the section 199A(a) deduction.

Section 199A was enacted on December 22, 2017, by section 11011 of An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Public Law 115-97, 131 Stat. 2054, 2063 (TCJA). Parts of section 199A were amended on March 23, 2018, as if included in TCJA, by section 101 of Division T of the Consolidated Appropriations Act, 2018, Public Law 115-141, 132 Stat. 348, 1151 (2018 Act). Unless otherwise indicated, all references to section 199A are to section 199A as amended by 2018 Act. Section 199A applies to taxable years beginning after December 31, 2017, and before January 1, 2026. Section 199A(g), as amended by 2018 Act, provides that Specified Cooperatives may claim a special deduction that is substantially similar to the domestic production activities deduction under former section 199, which was repealed by the TCJA. Specifically, section 199A(g) provides a deduction for a Specified Cooperative in an amount equal to 9 percent of the lesser of qualified production activities income (QPAI) of the Specified Cooperative for the taxable year determined under section 199A(g)(3)(A), or the taxable income of the Specified Cooperative for the taxable year determined under section 199A(g)(1)(C). Section 199A(g)(1)(B)(i) limits the amount of this deduction to 50 percent of the W-2 wages of the Specified Cooperative for the taxable year.

Section 199A(g)(1)(B)(ii) provides that W-2 wages are determined in the same manner as under section 199A(b)(4), without regard to section 199A(b)(4)(B) (which excludes from the definition amounts not properly allocable to qualified business income for purposes of section 199A(c)(1)) and after application of section 199A(b)(5) (concerning acquisitions, dispositions, and short taxable years), except that such wages do not include any amount that is not properly allocable to domestic production gross receipts (DPGR) for purposes of section 199A(g)(3)(A). Section 199A(b)(4)(A) defines the term W-2 wages to mean, with respect to any person for any taxable year of such person, the amounts described in section 6051(a)(3) and (8) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. Proposed §1.199A-11 further defines W-2 wages for purposes of section 199A(g). The proposed revenue procedure included in this Notice would provide guidance on the methods for calculating the amount of W-2 wages (as defined in section 199A(g)(1)(B)(ii) and proposed §1.199A-11) for purposes of determining the deduction limitation in section 199A(g)(1)(B)(i). Section 1.199A-11(c) of the proposed regulations provides the Internal Revenue Service with authority to issue computational guidance providing the methods that may be used for calculating W-2 wages, as defined in section 199A(g)(1)(B)(ii) and proposed §1.199A-11(c).

The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) request comments on the proposed revenue procedure contained in this Notice. All materials submitted will be available for public inspection and copying. Public comments should be submitted no later than August 19, 2019. Comments should include a reference to Notice 2019-27. Comments may be submitted electronically via the Federal eRulemaking Portal at www.regulations.gov (type IRS-2019-0013 in the search field on the www.regulations.gov homepage to find this notice and submit comments.) Alternatively, submissions may be sent to: CC:PA:LPD:PR (Notice 2019-27), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C., 20044. Submissions also may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2019-27), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224. All recommendations for guidance submitted by the public in response to this notice will be available for public inspection and copying in their entirety.

Rev. Proc. 2006-47, 2006-2 C.B. 869, is obsoleted.

This Notice is effective on June 18, 2019. The proposed revenue procedure is proposed to apply generally to taxable years ending after December 31, 2017.

Until such time that the proposed revenue procedure is published in final form, Specified Cooperatives may use the methods described in the proposed revenue procedure in calculating W-2 wages (as defined in section 199A(g)(1)(B)(ii)) for purposes of determining the limitation in section 199A(g)(1)(B)(i).

The principal authors of this Notice are Andrew Holubeck and Mikhail Zhidkov of the Office of the Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) and Theresa Melchiorre of the Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in its development. For further information regarding this Notice, contact Andrew Holubeck or Mikhail Zhidkov at (202) 317-4774, or James Holmes at (202) 317-4137 (not toll-free numbers).

Set forth below is the form of the proposed revenue procedure that is proposed in this Notice:

FORM OF PROPOSED REVENUE PROCEDURE