By Thomas McCormick, CPA | SCACPA Member Since 2013

As time has passed since the enactment of the 2017 Tax Cuts and Jobs Act, tax professionals have noted mistakes in drafting or unintended loopholes that could lead to undesirable taxpayer behaviors. Here is a brief discussion of topics that could be addressed by future technical corrections:

Qualified Improvement Property

Based on the law as written, “qualified improvement property” is no longer eligible for bonus depreciation.  The 2017 Act both enhanced the bonus depreciation deduction from 50% to 100% and broadened the property qualifying for bonus depreciation. However, qualified improvement property is ineligible for bonus depreciation because it is currently classified as a 39-year recovery period. Property eligible for bonus depreciation must have a recovery period of 20 years or fewer. The conference committee agreement intended that qualified improvement property would have a 15-year recovery period as the prior law had reflected for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property. These prior law categories were merged into one category as qualified improvement property under the new law.

Qualified improvement property is “any improvement to an interior portion of a building which is nonresidential real property if such property is placed in service after the date such building was first placed in service” and such property was placed in service on or after Jan. 1, 2018.

QBI 20% Deduction (Section 199A)

This new law allows individuals, trusts and estates to deduct up to 20% of their qualified business income (QBI) from a partnership, S-corporation or sole proprietorship. However, the calculation of the deduction as well as the carve-out limitations include many rules ripe for abuse. The deduction specifically phases out for certain taxpayers who own specified service trade or businesses, including businesses whose principal asset “is the reputation or skill of one or more of its employees or owners.” This deduction may result in preferences toward independent contractors who are eligible for the deduction over employees who are not eligible. Business also may re-direct certain revenue streams, which causes them to fall under these specified service trade or businesses.

This area is considered a top priority by the IRS and specifically as it relates to entities that had more than one trade or business and then “drop” one of their trade or businesses to not be impacted by the deduction limitations.

Net Operating Loss Carrybacks for Fiscal Year Taxpayers

The current law states that net operating loss carrybacks are eliminated effective for NOLs arising in tax years ending after Dec. 31, 2017. In the conference report, Congress intended for NOL carrybacks to be eliminated to be effective in years beginning after Dec. 31, 2017. Due to the law indicating “ending after December 31, 2017” fiscal year taxpayers with tax years beginning in 2017 and ending in 2018 will not be able to carryback the NOLs while Congressional intent was to allow such fiscal year taxpayers to carryback the NOLs. A Joint Committee of Taxation staffer has indicated that this among three issues that have been mentioned as items making the list for technical corrections; however, no final decisions have been made.


Thomas McCormick, CPA is a Senior Manager with Withum, having offices in Murrells Inlet, S.C., and Whippany, N.J. You can contact him at