Which high-income business owners will be shut out of the new passthrough deduction?
Unless coming Treasury regulations take the untenable position that there are many businesses (beyond those in professional fields enumerated in the statute) whose principal asset is “the reputation or skill of one or more of its employees or owners,” most disqualified businesses will be in one of four general categories. In the terminology of the Census Bureau’s North American Industrial Classification System (NAICS), they are: “professional, scientific, technical services” (health, law, accounting, actuarial science, and consulting in the statute); “health care and social assistance” (health); “art, entertainment, and recreation” (athletics, performing arts); and “finance and insurance” (financial services, brokerage services, investing and investment management, trading, or dealing in securities, partnership interests, or commodities).
Yes, that sounds exciting. But we aren’t dragging you through this economic shoptalk and adding another abrasive acronym to your tax vocabulary for no reason. The NAICS is the basis of the revised list of 413 principal business activity codes that are on the back of the instructions to Schedule C, Form 1065, and Form 1120S. Every business filing these returns must pick a six-digit code corresponding to the activity from which it derives the largest percentage of total receipts.
It seems likely the IRS will use those taxpayer-supplied codes as its starting point for section 199A audits. In the past, choosing one of these six-digit codes didn’t matter much (except for purposes of section 448 (cash method of accounting) and section 1202 (small business stock)). But in the future practitioners might want to choose more carefully and be ready to defend the choice. Unlike the dictionary and some IRS guidance, the NAICS manual provides detailed definitions of these business activities that, in the absence of other authority, could be useful in making principal activity determinations.
Building on Sand
New section 199A explicitly cross-references the list of professions in section 1202 (pertaining to small business stock) as its starting point for professions potentially not qualified for the passthrough deduction. (The section 1202 regulations make no explicit reference to qualified professions.) The official explanation of the Senate amendment in the conference report to the Tax Cuts and Jobs Act (P.L. 115-97) makes extensive reference to section 448 (listing service corporations that can use the cash method of accounting) and the related regulations as guides to what Congress intended regarding the enumerated section 199A specified professions. See Table 1 for a comparison of the three code sections.
Several imposing issues await taxpayers with the advent of section 199A. All passthrough business owners actively engaged in the business, no matter their income, will have to carefully set salaries they pay to themselves (an age-old issue for subchapter S shareholders wishing to trim payroll tax) because higher wages reduce qualified business income eligible for the section 199A deduction. Passive real estate investors, no matter their income, may not be considered a trade or business eligible for the deduction — depending on the decisions embodied in coming regulations. Taxpayers will have to re-assess the benefits of C corporation versus passthrough status in light of section 199A and other new provisions in the TCJA, most notably the reduction in the corporate tax rate from 35 percent to 21 percent. And after Treasury promulgates aggregation and antiabuse regulations, taxpayers with multiple passthrough businesses will have to consider consolidation, and all passthrough businesses may consider deconsolidation to minimize income disqualified because a business is “specified” or subject to limitations based on wages paid and property owned.
Another unavoidable issue lurking in the background is what amount of business activity in a disqualified field disqualifies an entire trade or business from the passthrough deduction. Suppose there was no uncertainty in the definition of business activity, and we lived in a simple economy with only two lines of business: (unskilled) wood chopping, which qualifies for the section 199A deduction, and (skilled) stone carving, which is a specified business and does not. Even in this fairy tale world, Treasury would have to untangle a bunch of knotty questions.
If one entity operates in both of those fields, must the two businesses be considered separately (because the statute interpreted strictly seems to require it)? Or alternatively, should they be prevented from being separated for section 199A purposes (because this could be considered abusive tax planning)? If the entity is considered a single business, what is the minimum percentage of the business that must be devoted to unskilled wood chopping before the business becomes disqualified? Ninety-five percent? Ninety percent? Seventy percent? Setting that percentage too high makes it easy to qualify by taking a small amount of qualified business (that is, if an otherwise disqualified stone-cutting business does a little bit of wood chopping). Setting the threshold percentage too low may encourage business mergers with no economic substance (that is, a disqualified stone-cutting business merges with a qualified wood-chopping business solely to qualify its stone-cutting income for the section 199A deduction).
The threshold percentage is set at 95 percent in the section 448 regulations. But in that case the gravitational pull is 180 degrees in the opposite direction. Under section 448, the incentive is to be in a qualified profession (above the threshold) because a qualifying business is eligible for the cash method of accounting. For section 199A, the entire incentive is not to be among the listed professions (that is, to be below the threshold) so that a business isn’t disqualified from receiving the passthrough deduction.
The question arises whether the threshold percentage includes services “incident” to the services squarely in the qualifying field. In the section 448 regulations, incident services include supervision of the qualifying activity and administrative and support services related to that activity. Finally, we must ask what units will be used to measure any threshold percentage. The two leading candidates are business receipts (as required in the instructions to business tax forms) and employee hours spent on qualified activity (as in the section 448 regulations).
Enter the Commerce Department
The prior article in this series used tax return data to explore the characteristics of business owners potentially eligible for the passthrough business deduction. This provided good insight on the number of taxpayers (an estimated 3.35 million) above the statutory taxable income thresholds ($157,500 for singles, $315,000 for all others). But this data told us nothing about whether income was from disqualified businesses or if limitations to qualified businesses applied. That article also used business tax return data to explore the amount of passthrough income in broad industrial classifications used by the IRS. (Prior analysis: Tax Notes, July 9, 2018, p. 165.)
This article uses data from the U.S. Census Bureau in the Department of Commerce. These NAICS data are notable for several reasons. First, they provide business categories in much finer detail than those generally available from the IRS. Second, as already noted, the Census Bureau provides detailed definitions (and examples) for each business category. Third, for the first time in an economic census, data from the 2012 census, published in 2016, provides breakdowns of industry data separately for subchapter S and C corporations (as well as the usual information on sole proprietorships and partnerships). This means the latest round of census data gives us a fully fleshed-out view of the passthrough sector that was previously unavailable. This article uses this data to explore the potential scope of passthrough business in professions enumerated in section 199A (as shown in the third column of Table 1, excluding “any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its owners or employees”).
The 2017 NAICS Manual is in effect through 2022 when it will be revised. It is available free online from the Census Bureau and is also available in hard copy from online sellers.
Section 448 (allows cash method of accounting for corporations in fields listed below) | Section 1202 (denies exemption of certain capital gains from sale of stock of small businesses in fields listed below) | Section 199A (potentially denies or limits 20 percent passthrough business deduction for owners of businesses in fields listed below) |
---|---|---|
“Qualified personal service corporation” means any corporation substantially all of the activities of which involve the performance of services in the fields of: | “Qualified trade or business” means any trade or business other than any trade or business involving the performance of services in the fields of: | “Qualified trade or business” means any trade or business other than a “specified service trade or business,” which is any trade or business involving the performance of services in the fields of: |
health | health | health |
law | law | law |
engineering | engineering |
|
architecture | architecture |
|
accounting | accounting | accounting |
actuarial science | actuarial science | actuarial science |
performing arts | performing arts | performing arts |
consulting | consulting | consulting |
| athletics | athletics |
| financial services | financial services |
| brokerage services | brokerage services |
| any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees | any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its owners or employees |
| banking, insurance, financing, leasing, investing, or similar business | investing and investment management, trading, or dealing in securities, partnership interests, or commodities |
| farming, including the raising or harvesting of trees |
|
| production or extraction of oil and gas products |
|
| hotel, motel, restaurant, or similar business |
|
Source: Internal Revenue Code. |
Lawyers and Such
The first place in the Census Bureau data to look for businesses in enumerated professions potentially disqualified for the section 199A deduction comes under the general heading of “Professional, Scientific, and Technical Services.” These data are presented in Table 2.
Clearly, the 49,000 sole proprietorships, 30,000 partnerships, and 67,000 S corporations in the category “office of lawyers” are prime candidates for disqualified businesses. But what about “title abstract and settlement office” and “all other legal services”?
The IRS and the courts provide zero guidance on the scope of the definition of the field of law for tax purposes. The lopsided section 448 regulations are not helpful. Of the nine types of businesses listed in the statute, two get a one-paragraph description (health and performing arts), one gets a one-paragraph description with 10 examples (consulting), one gets a parenthetical clarification (engineering includes surveying and mapping), and the remaining five get no specific attention. Law is one of those ignored professional fields. There are apparently no revenue rulings, private letter rulings, or technical advice memoranda on the definition of business involving the performance of services in the field of law. Nor are any court cases on the radar. In this case, left with no other guidance, use of the Census Bureau’s NAICS definition — by the IRS or by taxpayers — could be pivotal. After all, the IRS itself uses NAICS as the basis for its six-digit industry codes.
CPAs seem like a sure bet for disqualification. And, we are sorry to inform many of our readers, if the IRS piggybacks on the Tax Court’s section 448 decision in Rainbow Tax Services v. Commissioner, 128 T.C. 42 (2007), income generated by more than 16,000 tax return preparation establishments won’t qualify for the deduction (if the owners’ taxable income is above threshold amounts). For other similar businesses, like payroll services, there is only uncertainty.
At this point it’s worth reinforcing the idea (suggested by several commentators) that Treasury should refer to NAICS industry codes in its coming regulations. First, why create a new system (based on what principle, nobody knows) when there is a detailed system already in place? Second, if the IRS creates its own definition — for example, of accounting — that is different from the Census Bureau’s, it will create confusion among taxpayers as well as in official government statistics. Taxpayers will be unlikely to use different codes for census purposes and tax purposes. Tax-minimizing businesses will drift toward using the tax definition, and all the careful work Census has done over the decades in developing those classifications will be degraded.
Under the new memorandum of agreement between Treasury and the Office of Management and Budget, economically significant tax regulations will get a full review by the Office of Information and Regulatory Affairs (OIRA). Part of the OIRA process allows review by other federal agencies. Section 199A regulations are a prime candidate for economically significant regulations. In an action that would be foreign to the tax community, the Commerce Department could have input — perhaps significant — into tax regulations. (Prior analysis: Tax Notes, Apr. 23, 2018, p. 443.)
A potentially huge vein of section 199A disqualified business comes under the heading of consulting services. This is the category in which the section 448 regulations, while in other places so terse, are downright chatty. The regulations’ definition of consulting is centered on the phrase “advice and counsel.” A consulting business for section 448 purposes provides advice and counsel and is compensated directly for that advice and counsel and not through the sale of related products and services. So in Example 1 in the regulations, an economist providing a forecast and paid directly for that economic forecast is a consultant, but in Example 5, a broker who provides an economic forecast and receives compensation in the form of fees for trading securities is not. In Example 2, a computer specialist who is paid for determining a client’s computer needs is a consultant, but in Example 6, a computer specialist who assists a client in assessing computer processing needs and is compensated through sales of computer equipment to the client isn’t a consultant. Similarly, in Example 3 a business that helps a client determine its management and hiring needs and is paid for that advice is a consultant, but if a similar business is compensated by the client for each successful hire (Example 6) or by the employees hired (Example 7), it isn’t a consulting business.
Many of the business lines listed in Table 2 are potentially consultants under the section 448 regulations, particularly those with “consultant” in their name, including computer systems consultants; human resources consulting; human resources and personnel management consulting; marketing consulting; process, physical distribution, and logistics consulting; other management consulting services; environmental consulting services; economic and related consulting services; and all other scientific and technical consulting services.
Although they aren’t specified businesses under section 199A, the engineering and architecture categories deserve special mention. As indicated in Table 1, the two categories are included in the section 448 and 1202 list of qualified professions. And they were included in both the House and Senate versions of the TCJA’s passthrough tax relief but were removed in conference. However, a strict interpretation of the “reputation or skills” test could put those businesses right back into disqualified status. Now, everybody says this was a drafting oversight and that Congress clearly intended to exclude architects and engineers from the list. OK, let’s go along with that for argument’s sake. Does that mean businesses should want to be classified in either the architect or engineer category because they would provide safety from disqualification? It will be interesting to see how Treasury untangles this knot. But with no other guidance or court decisions available on the topic — especially if Treasury regulations also try to lasso a wide range of services into the “reputation or skills” category — taxpayers will be looking for an expansive definition of architecture and engineering.
If section 199A regulations follow a Tax Court ruling, businesses conducting geotechnical testing may be disappointed to find out they are not in the field of engineering (Alron Engineering & Testing Corp. v. Commissioner, T.C. Memo. 2000-335). Similarly, businesses that stake claims for mineral rights won’t be happy if the IRS continues to believe those services don’t fall within the field of engineering (LTR 9232009). If engineering is a safe harbor for purposes of section 199A, those taxpayers may want to use the NAICS manual to dispute the IRS’s prior assertions.
Actuarial science is a section 199A specified service, but no definition is provided by any IRS guidance or the courts. NAICS code 5416121 is “actuarial consulting (except insurance),” and NAICS code 524298 is “all other insurance-related activities,” which includes insurance actuarial consulting. Why shouldn’t coming regulations align the statutorily prescribed category of actuarial science with the NAICS categories?
Doctors and Who?
Table 3 shows all the NAIC categories related to health. When it wrote the section 488 regulations, the IRS decided to limit the statute’s potentially broad-ranging category of health services to medically related services (“physicians, nurses, dentists, and other similar health-care professionals”). The category doesn’t “include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient.” Health clubs and spas were provided as examples of nonqualifying businesses. Subsequent IRS rulings reinforced inclusion of uniformed medical personnel in the category of health who directly provided patient care. So, for example, emergency ambulance technicians (LTR 9309004), physical therapists (LTR 9222004), X-ray technicians (FSA 1999-919), and veterinarians (Rev. Rul. 91-30, 1991-1 C.B. 61) qualify. Medical billing (LTR 8927006), laboratory testing (LTR 201717010), and drug manufacturing and testing (LTR 201436001) don’t.
Veterinarians may be interested to note that under the NAICS, their profession isn’t considered health (in Table 3) but the provision of a technical service (in Table 2). Again, if the “reputation and skill” clause isn’t given broad application, these taxpayers might want to argue that the NAICS classification should justify their qualification for full section 199A benefits.
Actors, Jocks, and Stockbrokers
Businesses involving the performance of services in the field of performing arts and field of athletics are specified businesses under section 199A. Regulations for section 448 explicitly kicked professional athletes out of the enumerated profession, but the TCJA wants them in.
NAICS Code
| Industry | Proprietorships | Partnerships | S Corporations | C Corporations | ||||
---|---|---|---|---|---|---|---|---|---|
Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | ||
Legal Services | |||||||||
541110 | Offices of lawyers | 48,890 | $35 | 29,685 | $90 | 67,256 | $69 | 26,010 | $115 |
541191 | Title abstract and settlement offices | 417 | $38 | 1,651 | $46 | 5,029 | $45 | 2,505 | $51 |
541199 | All other legal services | 433 | n.a. | 304 | $46 | 1,849 | $41 | 698 | $57 |
Accounting, Tax Preparation, and Related Services | |||||||||
541211 | Offices of certified public accountants | 11,321 | $28 | 8,543 | $79 | 28,416 | $54 | 8,856 | $80 |
541213 | Tax preparation services | 6,153 | $7 | 1,747 | n.a. | 8,574 | $11 | 10,574 | $8 |
5412141 | Talent payment services | 56 | n.a. | 16 | n.a. | 77 | n.a. | 54 | $65 |
5412142 | Payroll services (except talent payment) | 451 | n.a. | 758 | n.a. | 1,733 | n.a. | 2,785 | $36 |
541219 | Other accounting services | 7,172 | n.a. | 3,117 | n.a. | 20,586 | $33 | 6,833 | $42 |
Architectural, Engineering, and Related Services | |||||||||
541310 | Architectural services | 2,375 | $47 | 1,835 | $66 | 12,486 | $64 | 4,170 | $78 |
541320 | Landscape architectural services | 742 | n.a. | 338 | $45 | 2,859 | $46 | 942 | $59 |
541330 | Engineering services | 2,598 | n.a. | 3,588 | $73 | 31,280 | $71 | 20,826 | $89 |
541340 | Drafting services | 182 | $31 | 113 | $45 | 1,679 | $46 | 389 | $53 |
541350 | Building inspection services | 307 | $32 | 286 | $34 | 4,007 | $37 | 875 | $47 |
541360 | Geophysical surveying and mapping services | 36 | $39 | 49 | $51 | 464 | $54 | 211 | $80 |
541370 | Surveying and mapping (except geophysical) | 1,573 | $27 | 509 | $43 | 4,480 | $45 | 1,523 | $62 |
541380 | Testing laboratories | 277 | n.a. | 526 | $62 | 3,180 | $51 | 2,622 | $59 |
Specialized Design Services | |||||||||
541410 | Interior design services | 1,248 | $29 | 735 | $46 | 7,412 | $49 | 2,054 | $46 |
541420 | Industrial design services | 94 | $37 | 122 | $79 | 880 | $62 | 341 | $92 |
541430 | Graphic design services | 1,390 | n.a. | 955 | $59 | 10,482 | $51 | 2,469 | $57 |
541490 | Other specialized design services | 171 | $34 | 163 | $42 | 1,034 | $46 | 394 | $70 |
Computer System Design and Related Services | |||||||||
541511 | Custom computer programming services | 2,009 | n.a. | 5,682 | $74 | 38,454 | $74 | 18,153 | $86 |
5415121 | Computer systems integrators | 638 | n.a. | 1,680 | $75 | 10,879 | $73 | 13,850 | $96 |
5415122 | Computer systems consultants (except integrators) | 737 | n.a. | 1,222 | $93 | 13,764 | $76 | 4,730 | $109 |
541513 | Computer facilities management services | 282 | n.a. | 584 | $68 | 4,076 | $68 | 3,170 | $91 |
541519 | Other computer related services | 256 | n.a. | 899 | $72 | 6,612 | $69 | 2,709 | $103 |
| Other Professional, Scientific, and Technical Services | ||||||||
541611 | Administrative, general management consulting | 3,738 | $55 | 6503 | $110 | 42,852 | $67 | 15,168 | $103 |
541612 | Human resources consulting services | 407 | n.a. | 605 | $47 | 4,085 | $60 | 3,117 | $87 |
5416121 | Actuarial consulting | 33 | $70 | 55 | $104 | 423 | $102 | 240 | $179 |
5416123 | Human resources, personnel management consulting | 374 | n.a. | 550 | $45 | 3,662 | $57 | 2,877 | $80 |
541613 | Marketing consulting services | 1,611 | $44 | 2,981 | $63 | 19,285 | $54 | 6,464 | $66 |
541614 | Process, physical distribution, logistics consulting | 315 | n.a. | 795 | $36 | 4,412 | $57 | 2,613 | $62 |
541618 | Other management consulting services | 275 | $44 | 498 | $59 | 3,970 | $59 | 1,077 | $66 |
541620 | Environmental consulting services | 484 | n.a. | 767 | $54 | 6,315 | $56 | 2,654 | $70 |
5416901 | Economic and related consulting services | 214 | n.a. | 177 | $88 | 1,267 | $95 | 799 | $113 |
5416909 | All other scientific and technical consulting services | 1,322 | $39 | 1,470 | $68 | 11,319 | $63 | 4,015 | $81 |
541711 | Research and development in biotechnology | 68 | $73 | 359 | $77 | 510 | $53 | 1,806 | $153 |
541712 | R&D in the physical, engineering, life sciences (except biotech) | 318 | n.a. | 1,225 | $89 | 3,197 | n.a. | 5,613 | $116 |
54172 | R&D in social sciences, humanities | 86 | n.a. | 95 | $65 | 558 | n.a. | 311 | $48 |
541810 | Advertising agencies | 598 | $70 | 1,535 | $75 | 7,560 | $66 | 3,414 | $89 |
541820 | Public relations agencies | 643 | n.a. | 866 | $83 | 4,652 | $76 | 1,802 | $101 |
541830 | Media buying agencies | 24 | n.a. | 114 | $86 | 476 | $75 | 340 | $89 |
541840 | Media representatives | 63 | n.a. | 176 | $86 | 746 | $61 | 501 | $88 |
5418402 | Publishers’ advertising representatives | 44 | n.a. | 95 | $59 | 565 | $57 | 273 | $76 |
541850 | Outdoor advertising | 166 | $30 | 317 | $51 | 1,301 | $47 | 887 | $47 |
541860 | Direct mail advertising | 152 | $35 | 268 | $47 | 1,656 | $41 | 841 | $51 |
541870 | Advertising material distribution services | 36 | $9 | 93 | $42 | 447 | $48 | 221 | $76 |
541890 | Other services related to advertising | 704 | n.a. | 605 | $48 | 4,418 | $24 | 1,904 | $43 |
5418902 | Advertising specialties goods distributor | 294 | n.a. | 276 | $40 | 2,345 | $42 | 1,039 | $42 |
5418903 | Sign painting and lettering shop | 305 | $22 | 122 | $39 | 1,012 | $30 | 354 | $38 |
5418908 | Other advertising, welcoming services | 105 | n.a. | 207 | $58 | 1,061 | $16 | 511 | $44 |
541910 | Marketing research, opinion polling | 229 | $45 | 556 | $48 | 2,656 | $41 | 2,102 | $66 |
541921 | Photography studios, portrait | 2,591 | $17 | 1,013 | n.a. | 5,931 | $21 | 4,113 | $18 |
541922 | Commercial photography | 427 | $25 | 179 | n.a. | 2,359 | $46 | 736 | $47 |
541930 | Translation and interpretation services | 183 | $27 | 159 | $62 | 1,514 | $52 | 488 | $40 |
541940 | Veterinary services | 5,937 | $24 | 2,296 | $29 | 16,621 | $32 | 5,192 | $37 |
5419901 | Meteorological services | 10 | n.a. | 16 | n.a. | 182 | $54 | 133 | $69 |
5419909 | Other professional, scientific, and technical services | 850 | n.a. | 966 | $49 | 7,238 | $49 | 3,228 | $63 |
Source: U.S. Census Bureau. https://www.census.gov/programs-surveys/economic-census/data/tables.2012.html. Data are from 2012. |
The regulations for section 448 explain that services in the field of the performing arts are the provision of services by actors, actresses, singers, musicians, entertainers, and similar artists. Excluded are persons who manage or promote performing artists and businesses that broadcast and disseminate the performances of artists. Following the themes laid out in the regulations, the IRS said in LTR 9416006 that “only persons who perform for an audience will be considered to perform services in the field of the performing arts.” The activities of a director, it pointed out, don’t involve performing before an audience. Table 4 includes the data on passthrough businesses, including performing artists (qualified under section 448) and their promoters, agents, and managers (not qualified under section 448).
Regarding the new category of athletics, if section 199A regulations adopt the same line of reasoning as the section 448 regulations apply to performing artists, only athletes who “perform” in front of spectators will be included. A twist that might one day make headlines is the application of section 199A to sports teams. Most teams are closely held businesses organized as limited partnerships or S corporations (Scott R. Rosner and Kenneth L. Shropshire, The Business of Sports 43 (2010)). It certainly seems to be within Treasury’s authority to include those franchises in the definition of passthrough businesses performing services in the field of athletics. If President Trump is still interested in using tax policy to punish NFL teams, his Treasury Department could turn on that switch.
Table 5 shows the subset of NAICS categories that seem to closely align the financial service business categories in section 199A (listed in Table 1).
The Good News
In this author’s opinion, the “reputation or skill” clause will and should be interpreted to apply narrowly. That means the vast array of passthrough American businesses listed in Table 6 — including manufacturers, wholesale and retail trade, restaurants, and hotels — will be eligible for the full benefits of section 199A. There are several reasons, of which only a few will be mentioned here. First, it will benefit taxpayers and voters, and nobody is lobbying Treasury for more stringent regulations. That will make Treasury’s job more pleasant. It will reduce revenue collected by Treasury, but it will also have the beneficial side effect of making tax law more certain because there will be fewer court challenges. Second, the “reputation or skill” clause requires the exercise of much subjective judgment in situations that depend heavily on facts and circumstance. In other words, it is an administrative nightmare for the already overburdened IRS, and it draws a wobbly boundary that will scare conservative taxpayers and embolden the aggressive. Third, there is no clear guiding principle for any restrictions on specific professions, so why exert effort to reach a meaningless goal? (Prior analysis: Tax Notes, Mar. 5, 2018, p. 1320.)
A fourth good reason was discussed in these pages recently by John Cunningham, a former Justice Department attorney in the Tax Division. He applied to section 199A the canon of statutory interpretation known as ejusdem generis. The phrase means that if there is a list of things that ends with a vague catchall (like “and other stuff” or “et cetera”), the catchall should be narrowly construed to be similar to the items in the prior list. If the regulation writers apply this principle to the “reputation or skill” clause, the only specified fields will be those involving skilled white-collar professionals and elite professional performers and athletes. (Prior analysis: Tax Notes, July 2, 2018, p. 83.) Sorry, plumbers and electricians, if it seems like you are being insulted. But we think you’ll get over it.
NAICS Code | Industry | Proprietorships | Partnerships | S Corporations | C Corporations | ||||
---|---|---|---|---|---|---|---|---|---|
Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | ||
Offices of Physicians and Dentists | |||||||||
621111 | Physicians (except mental health specialists) | 27,392 | n.a. | 16,367 | $56 | 91,673 | $70 | 74,431 | $96 |
621112 | Physicians, mental health specialists | 2,018 | n.a. | 539 | $38 | 4,937 | $54 | 3,227 | $63 |
621210 | Dentists | 36,608 | $30 | 7548 | $37 | 65,892 | $46 | 23,153 | $56 |
Offices of Other Health Professionals | |||||||||
621310 | Chiropractors | 9,843 | $18 | 1,917 | $27 | 22,909 | $29 | 4,122 | $33 |
621320 | Optometrists | 5,098 | $23 | 1,368 | $29 | 12,054 | $35 | 3,041 | $39 |
621330 | Mental health practitioners (except physicians) | 3,381 | $20 | 1,039 | $26 | 11,539 | $30 | 4,606 | $34 |
6213401 | Speech therapists and audiologists | 598 | $30 | 414 | $32 | 3,385 | $35 | 1,484 | $39 |
6213402 | Physical and occupational therapists | 1,775 | $30 | 3,602 | $40 | 14,351 | $38 | 8,638 | $43 |
621391 | Podiatrists | 2,642 | $22 | 585 | $31 | 3977 | $43 | 1,579 | $51 |
621399 | All other health practitioners | 1,708 | $21 | 1,168 | $25 | 9829 | $31 | 3,835 | $50 |
Outpatient Care Centers | |||||||||
621410 | Family planning centers | 29 | $25 | 66 | $52 | 238 | $64 | 112 | $55 |
621420 | Outpatient mental health, substance abuse | 298 | $28 | 538 | $32 | 1,894 | $32 | 1,014 | $36 |
621491 | HMO medical centers | 0 | n.a. | 12 | n.a. | 4 | $16 | 78 | n.a. |
621492 | Kidney dialysis centers | 16 | n.a. | 487 | n.a. | 231 | $44 | 4,397 | $44 |
621493 | Ambulatory surgical, emergency centers | 268 | n.a. | 2,262 | $42 | 1,491 | $43 | 1,418 | n.a. |
621498 | All other outpatient care centers | 270 | n.a. | 962 | $44 | 1,900 | $46 | 2,473 | $59 |
Medical and Diagnostic Laboratories | |||||||||
621511 | Medical laboratories | 149 | n.a. | 675 | $47 | 1,406 | $55 | 4,464 | $61 |
621512 | Diagnostic imaging centers | 201 | n.a. | 1,818 | $46 | 2,571 | $57 | 2,216 | $71 |
Home Healthcare Services | |||||||||
621610 | Home healthcare services | 3,764 | $19 | 3,546 | $27 | 11,261 | $22 | 8,592 | $25 |
Other Ambulatory Healthcare Services | |||||||||
621910 | Ambulance services | 106 | $21 | 314 | $32 | 1,193 | $31 | 1,636 | $38 |
621991 | Blood and organ banks | 9 | n.a. | 37 | n.a. | 75 | $51 | 362 | $31 |
6219991 | Medical case management | 105 | $34 | 142 | $44 | 732 | $48 | 410 | $70 |
6219999 | All other ambulatory healthcare | 145 | n.a. | 225 | n.a. | 876 | $38 | 559 | $45 |
Hospitals | |||||||||
6221102 | General medical, surgical hospitals | 12 | $41 | 255 | $52 | 39 | $43 | 526 | $51 |
6222102 | Psychiatric and substance abuse hospitals | 13 | $38 | 35 | $38 | 27 | $40 | 176 | $31 |
6223102 | Other specialty hospitals | 14 | $40 | 198 | $46 | 8 | $55 | 413 | $45 |
Nursing and Residential Care Facilities | |||||||||
623110 | Nursing care facilities (skilled nursing) | 694 | n.a. | 4,348 | $28 | 3,660 | $27 | 4,925 | $27 |
623210 | Residential intellectual, developmental disability facilities | 1,298 | $18 | 973 | $17 | 3,299 | $19 | 4,825 | $20 |
623220 | Residential mental health, substance abuse facilities | 231 | $25 | 386 | $28 | 911 | $29 | 664 | $27 |
623311 | Continuing care retirement communities | 272 | $20 | 976 | $22 | 998 | $21 | 776 | $25 |
623312 | Assisted living facilities for the elderly | 2,703 | $17 | 3,821 | $20 | 4,670 | $19 | 4,131 | $22 |
623990 | Other residential care facilities | 236 | $16 | 151 | $21 | 480 | $22 | 515 | $24 |
Social Assistance | |||||||||
624110 | Child and youth services | 301 | $15 | 197 | $23 | 627 | $27 | 510 | $28 |
624120 | Services for the elderly, persons with disabilities | 3,579 | n.a. | 1,910 | $15 | 5,674 | $15 | 3,000 | $16 |
624210 | Community food services | 15 | $29 | 9 | $28 | 27 | $19 | 39 | $24 |
624221 | Temporary shelters | 5 | $23 | 9 | $30 | 6 | $31 | 15 | $19 |
624229 | Other community housing services | 21 | n.a. | 31 | $27 | 34 | $36 | 59 | $27 |
624230 | Emergency and other relief services | 7 | $56 | 7 | $21 | 33 | $47 | 19 | $51 |
624310 | Vocational rehabilitation services | 299 | $25 | 106 | $21 | 851 | $28 | 745 | $31 |
624410 | Child day-care services | 17,681 | $13 | 5,950 | $16 | 17,912 | $17 | 12,824 | $18 |
Source: U.S. Census Bureau. https://www.census.gov/programs-surveys/economic-census/data/tables.2012.html. Data are from 2012. |
NAICS Code | Industry | Proprietorships | Partnerships | S Corporations | C Corporations | ||||
---|---|---|---|---|---|---|---|---|---|
Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | ||
Performing Arts, Spectator Sports, and Related Industries | |||||||||
711110 | Theater companies and dinner theaters | 72 | n.a. | 358 | $37 | 521 | $25 | 317 | $32 |
711120 | Dance companies | 8 | n.a. | 8 | n.a. | 34 | n.a. | 18 | n.a. |
711130 | Musical groups and artists | 281 | n.a. | 251 | $40 | 1,945 | $61 | 488 | n.a. |
711190 | Other performing arts companies | 28 | n.a. | 21 | n.a. | 133 | n.a. | 79 | n.a. |
711211 | Sports teams and clubs | 74 | $198 | 417 | $240 | 216 | $414 | 234 | $231 |
711212 | Racetracks | 43 | $21 | 156 | $26 | 210 | $28 | 235 | $30 |
711219 | Other spectator sports | 603 | $27 | 342 | $62 | 1,255 | $57 | 379 | $56 |
711310 | Promoters of performing arts, sports, and similar events with facilities | 105 | n.a. | 361 | $18 | 433 | n.a. | 436 | $14 |
711320 | Promoters of performing arts, sports, and similar events without facilities | 187 | n.a. | 389 | $46 | 1,555 | n.a. | 673 | $67 |
711410 | Agents and managers for artists, athletes, entertainers, and other public figures | 253 | n.a. | 479 | $123 | 2,123 | $105 | 860 | $89 |
711510 | Independent artists, writers, and performers | 2,169 | n.a. | 836 | $40 | 13,817 | $166 | 5,539 | $164 |
712110 | Museums | 56 | n.a. | 62 | $27 | 119 | n.a. | 160 | $29 |
Museums, Historical Sites, and Similar Institutions | |||||||||
712120 | Historical sites | 10 | n.a. | 13 | $17 | 13 | n.a. | 23 | n.a. |
712130 | Zoos and botanical gardens | 32 | $19 | 32 | $20 | 78 | $28 | 63 | $24 |
712190 | Nature parks and other similar institutions | 21 | $24 | 25 | $22 | 58 | n.a. | 35 | n.a. |
Amusement, Gambling, and Recreation Industries | |||||||||
713110 | Amusement and theme parks | 21 | $33 | 117 | $29 | 133 | $38 | 171 | $24 |
713120 | Amusement arcades | 257 | $9 | 726 | $10 | 1264 | $12 | 610 | $13 |
713210 | Casinos (except casino hotels) | 11 | n.a. | 51 | $29 | 39 | $26 | 179 | $31 |
713290 | Other gambling industries | 198 | n.a. | 405 | $23 | 881 | $25 | 1,048 | $27 |
713910 | Golf courses and country clubs | 636 | n.a. | 2555 | $22 | 2,534 | n.a. | 2,993 | $24 |
713920 | Skiing facilities | 14 | $10 | 71 | $10 | 102 | $7 | 182 | $10 |
713930 | Marinas | 204 | $30 | 708 | $34 | 1,512 | $36 | 1,358 | $32 |
713940 | Fitness and recreational sports centers | 2,854 | n.a. | 7188 | $13 | 9,980 | $13 | 5,332 | $15 |
713950 | Bowling centers | 350 | n.a. | 620 | $13 | 1,704 | $13 | 1,388 | $14 |
713990 | All other amusement and recreation industries | 1,416 | n.a. | 2,421 | $17 | 4,827 | n.a. | 2,754 | $21 |
Source: U.S. Census Bureau. https://www.census.gov/programs-surveys/economic-census/data/tables.2012.html. Data are from 2012. |
NAICS Code | Industry | Proprietorships | Partnerships | S Corporations | C Corporations
| ||||
---|---|---|---|---|---|---|---|---|---|
Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | Establishments | Average Salary | ||
Securities, Commodity Contracts, and Other Financial Intermediaries, and Related Activities | |||||||||
523110 | Investment banking, securities dealing | 284 | n.a. | 729 | $236 | 996 | $189 | 1,131 | $365 |
523120 | Securities brokerage | 2,482 | n.a. | 13,135 | $107 | 4,583 | $81 | 20,090 | $154 |
523130 | Commodity contracts dealing | 40 | n.a. | 19 | $126 | 259 | $90 | 406 | $256 |
523140 | Commodity contracts brokerage | 86 | $52 | 21 | $155 | 615 | $81 | 539 | $149 |
523210 | Securities and commodity exchanges | 0 | n.a. | 0 | n.a. | 0 | n.a. | 29 | $190 |
523910 | Miscellaneous intermediation | 727 | $78 | 2,552 | $183 | 2,675 | $110 | 2,046 | $159 |
523920 | Portfolio management | 2,581 | $113 | 6,281 | $338 | 9,088 | $157 | 5,599 | $216 |
523930 | Investment advice | 2,740 | $43 | 2,468 | $135 | 6,272 | $91 | 4,251 | $112 |
523991 | Trust, fiduciary, custody activities | 596 | $48 | 227 | $94 | 405 | $69 | 1,108 | $78 |
523999 | Other financial investment activities | 43 | n.a. | 134 | $99 | 339 | $70 | 236 | $107 |
Source: U.S. Census Bureau. https://www.census.gov/programs-surveys/economic-census/data/tables.2012.html. Data are from 2012. |
Proprietorships | Partnerships | S Corporations | C Corporations | All Establishments | |||||
---|---|---|---|---|---|---|---|---|---|
Establishments | Average Receipts | Establishments | Average Receipts | Establishments | Average Receipts | Establishments | Average Receipts | Establishments | Average Receipts |
Mining (NAICS 21) | |||||||||
1,561 | 2,301 | 2,913 | 14,650 | n.a. | n.a. | n.a. | n.a. | 17,090 | 206,041 |
Utilities (NAICS 22) | |||||||||
221 | n.a. | 846 | $34,989 | 1,098 | $5,406 | 15,426 | $32,027 | 17,595 | $30,230 |
Construction (NAICS 23) | |||||||||
96,021 | $417 | 45,419 | $3,113 | 322,519 | $2,041 | 134,044 | $3,928 | 598,003 | $9,500 |
Manufacturing (NAICS 31-33) | |||||||||
23,591 | $2,408 | 26,625 | $20,782 | 121,521 | $5,500 | 84,361 | $51,769 | 256,304 | $22,226 |
Wholesale Trade (NAICS 42) | |||||||||
16,667 | $4,257 | 33,835 | $24,012 | 182,301 | $8,160 | 186,238 | $29,620 | 419,464 | $18,834 |
Retail Trade (NAICS 44-45) | |||||||||
107,811 | $823 | 99,129 | $3,776 | 373,555 | $3,110 | 475,684 | $5,402 | 1,062,083 | $3,973 |
Transportation and Warehousing (NAICS 48-49) | |||||||||
21,162 | $634 | 19,912 | $2,553 | 92,586 | $1,641 | 79,940 | $6,429 | 213,809 | $3,417 |
Information (NAICS 51) | |||||||||
3,932 | $2,623 | 16,492 | $10,467 | 34,958 | $1,712 | 82,784 | $12,018 | 138,341 | $8,952 |
Finance and Insurance (NAICS 52) | |||||||||
48,356 | $463 | 42,933 | $4,170 | 120,194 | $978 | 255,907 | $12,379 | 468,183 | $7,766 |
Real Estate and Rental and Leasing (NAICS 53) | |||||||||
27,637 | $644 | 85,715 | $1,561 | 135,701 | $757 | 104,478 | $2,228 | 354,106 | $1,377 |
Professional, Scientific, and Technical Services (NAICS 54) | |||||||||
111,259 | $361 | 89,741 | $3,528 | 443,075 | $863 | 207,282 | $3,380 | 851,542 | $1,691 |
Administrative and Support and Waste Management and Remediation Services (NAICS 56) | |||||||||
59,924 | $302 | 38,968 | $2,079 | 173,087 | $1,292 | 114,274 | $3,061 | 386,387 | $1,742 |
Educational Services (NAICS 61) | |||||||||
7,595 | $214 | 7,283 | $724 | 28,525 | $543 | 12,519 | $1,365 | 55,922 | $706 |
Healthcare and Social Assistance (NAICS 62) | |||||||||
124,936 | $422 | 65,620 | $2,693 | 307,952 | $947 | 191,581 | $2,538 | 690,525 | $1,461 |
Arts, Entertainment, and Recreation (NAICS 71) | |||||||||
9,903 | $785 | 18,612 | $2,379 | 45,486 | $883 | 25,554 | $2,701 | 99,659 | $1,622 |
Accommodation and Food Services (NAICS 72) | |||||||||
92,002 | $447 | 134,126 | $1,198 | 250,956 | $871 | 185,123 | $1,552 | 662,489 | $1,069 |
Other Services (NAICS 81) | |||||||||
85,078 | $214 | 41,431 | $576 | 185,521 | $553 | 110,449 | $780 | 422,719 | $546 |
Total of Above 17 Categories | |||||||||
836,095 |
| 766,687 |
| 2,819,035 |
| 2,265,644 |
| 6,697,131 |
|
Source: U.S. Census Bureau. https://www.census.gov/programs-surveys/economic-census/data/tables.2012.html. Latest mining data from 2007. All other data from 2012. Data for two-digit code 55, Management of companies and enterprises, not included above has 53,765 establishments and $115.5 billion in gross receipts. |