In January 2019, the Internal Revenue Service (IRS) issued final rules addressing one of the biggest uncertainties facing franchise businesses following passage of the new tax law: eligibility for a new 20% deduction on qualified business income for so-called "specified service trades or businesses" (SSTBs).
When the issue of eligibility first emerged, IFA launched an advocacy campaign to ensure franchisees could benefit from this deduction, soliciting support from congressional allies, and the administration, as well as engaging outside technical tax expertise from Miller & Chevalier and IFA Supplier Members Binder Dijker Otte (BDO) and Citrin Cooperman. The IRS' final regulation in January 2019 came in the wake of these efforts by IFA and our allies, alongside IFA testimony and comments submitted to the Treasury Department which argued that business income from franchise fees and royalties should be eligible for the deduction. According to FRANdata, upwards of 500 franchise brands were impacted by this regulation, including those in health care, fitness, personal services, and professional services.
The decision by the IRS ensures that franchisees, many of whom file as pass-through entities or S-corps, face a fair tax burden on April 15th.