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Section 446 Separate Trade or Business Rules: Identifying Distinct Business Lines

Real Estate Safe Harbors, Intersection Between Sections 446 and 162, Impact of 199A on STB Determination

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, May 29, 2019

Recorded event now available

or call 1-800-926-7926

This course will provide partnership tax advisers with a thorough and practical guide to the Section 446 separate trade or business (STB) rules. The panel will dig into the standards for determining whether an activity qualifies as a separate trade or business, discuss accounting method considerations for separate business lines, and offer an in-depth exploration of the STB rules underpinning Section 199A.


The STB rules found in Section 446 have long challenged tax practitioners due to the lack of guidance clearly defining what constitutes distinct trades or businesses among multiple activities. While the IRS has provided some framework for determining whether activities could be considered "separate," the analysis remains highly dependent on the facts and circumstances of the activity and the entity.

Before the 2017 tax reform legislation (P.L. 115-97, the Tax Cuts and Jobs Act or TCJA), the Section 446 rules served primarily to set the framework for whether entities with multiple lines of business could use different accounting methods. However, the passage of Section 199A and its provisions limiting aggregation of separate activities for purposes of calculating the 20% qualified business income (QBI) deduction has increased the urgency for tax advisers to pass-through entities to determine the magnitude of separate activities and whether they rise to the level of constituting a distinct trade or business.

Additionally, the latest proposed guidance by Treasury detailing a "safe harbor" for rental real estate activities to be treated as STBs creates additional planning opportunities for tax advisers able to fully discern the facts and circumstances tests for ensuring that business lines will be treated as separate. Understanding the STB rules of Section 446 may help tax advisers avoid costly misclassifications.

Listen as our panel of tax specialists provides a deep dive into what constitutes a "trade or business" and the context to which the determination is relevant, focusing on real estate activities for purposes of the 199A deduction in light of the recently proposed revenue procedure.



  1. Section 446 general rules and initial guidance
  2. The intersection of Section 446 with Section 162
  3. Facts and circumstances analysis
  4. Tests for determining whether distinct activities are STBs under Section 446
  5. Impact of Section 199A deduction on separate trade or business analysis
    1. Clarifications on STBs
    2. Cross-references to Section 1202 capital gains exclusion rules
    3. Differences between Section 199A STB definitions and other IRS provisions regarding service businesses
  6. Notice 2019-07 Safe Harbor for real estate pass-through entities


The panel will discuss these and other vital questions:

  • How Section 446 rules operate for purposes of adopting or changing accounting methods for separate trades or businesses
  • How the Section 199A regulation definitions of STBs differ from other provisions in the Internal Revenue Code regarding service-related businesses
  • The safe harbor test for rental real estate businesses held in pass-through entities for STB calculations to qualify for the Section 199A deduction
  • How the STB determination works for real estate businesses in general and STB factors unique to rental real estate activities


Abel, Melissa
Melissa Abel


Ms. Abel is currently on rotation at Washington National Tax in the Income Tax & Accounting practice. Prior to the...  |  Read More

Borosh, Ossie
Ossie Borosh


Ms. Borosh focuses on partnership taxation and issues relating to investment funds, including private equity funds and...  |  Read More

Harris, Deanna
Deanna Harris

Senior Manager

Ms. Harris advises KPMG partners, employees, and clients on partnership, S corporation and general corporate tax...  |  Read More

O'Connor, Colleen
Colleen O'Connor


Ms. O’Connor advises clients in a variety of industries on matters involving timing provisions governing income...  |  Read More

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