By David Myers
In an article published earlier this year, we discussed the new 3.8% Medicare tax, or Net Investment Income Tax (“NIIT”), and recommended taxpayers evaluate the need to amend lease agreements and make the grouping election under IRC section 469. We have received a number of inquiries regarding this new tax and want to provide an update on this evolving area.
Although the IRS has yet to comment on the issue, the American Institute of Certified Public Accounts (AICPA) has submitted a letter to the IRS requesting additional guidance. The AICPA letter states in relevant part that: “the assumption should be that a rental activity properly grouped with a pass-through non-rental trade or business in which the owner materially participates is not subject to [the Net Investment Income Tax].” The letter goes on to directly request the IRS’ position as to this conclusion. Due to the AICPA’s confirmation of this interpretation of the statute, some businesses may still want to consider currently amending lease agreements to maximize any potential benefit. However, since this is such a new area of law and the AICPA’s direct request for guidance increases the likelihood that the IRS will provide guidance, the most cautious approach would be to wait for additional guidance from the IRS. We will post additional updates as new information becomes available.