QBI Deduction: Sports Team Owners’ Problem

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Contributing Author:  D. Larry Crumbley 

On August 18, 2018, the Treasury Department and the IRS issued Proposed Regulations for Section 199A.  They received written and electronic comments regarding these proposed regulations and held a public hearing on October 16, 2018.  After consideration of these comments, the Treasury Department issued Final Regulations with modifications on October 16, 2018. 

Section 199A provides a deduction up to 20 percent of income from a domestic business such as an S corporation, sole proprietorship, partnership, trusts, or estates.  This valuable deduction is not available for high income taxpayers in 2020 (it phases out to zero at modified income of $426,600 for married taxpayers, $213,300 for married individuals filing separate returns, and $213,300 for all other taxpayers) of certain specified service trade or business. 

These excluded specified service trade or businesses include the performance of services in certain fields, including health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services.  The Proposed Regulations took the position that athletics includes services performed by individuals who participate in athletic competition such as athletes, coaches, and team managers. 

Since owners do not seem to fall within this definition, the Commissioner of Baseball and others tried to get the Treasury to remove the owner’s prohibition from the Final Regulations to §199A, as they are not performing athletic services directly. 

The Treasury disagrees and believes that income derived from ticket sales and broadcast rights does not qualify for the §199A deduction.    

Ideas for Class Assignments on this Topic

  1. Are any professions exempted from the 20% prohibition?  Which ones? 
  2. Have students locate Final Regulations for §199A (Reg §§ 1.199A-1 through -6).  When are they effective? 
  3. How much total estimated annual reporting burden is caused by §§1.199A-4 and 1.199A-6? 
  4. How do the Final Regulations define capital gain for purposes of §199A? 
  5. How does these regulations define a Relevant Passthrough Entity (RPE)? 
  6. For this purpose, what is included in the field of accounting services?


  1. G.G. Collins and B. Henderson, Service business that qualify for the 20% QBI Deduction. The Tax Adviser, December 2018. 
  2. W.S. Turkovich and T.P. Noonan, Sports Team Owners Strike-Out with Pass-Through Deduction, Noonan’s Notes Blog, February 4, 2019. 



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