United States

Additional guidance on 3.8 percent NIIT delayed

Uncertainty will also persist for trusts and estates


Taxpayers will likely need to wait longer than previously expected for additional guidance regarding the 3.8 percent net investment income tax (NIIT). Despite assurances late last year that final rules were imminent, IRS officials are now indicating that guidance will not be coming anytime soon.

In December 2013, the IRS released proposed regulations meant to clarify how the NIIT would apply to certain payments, including:

  1. Sale proceeds from the disposition of a partnership or S corporation interest
  2. Guaranteed payments by a partnership for services or the use of capital
  3. Redemption payments made to a retiring partner

When the IRS released these proposed regulations, they also acknowledged the uncertainty that exists regarding how the NIIT should apply to trusts and estates. Treasury has yet to issue regulations explaining the circumstances under which a trust could be considered a ‘material participant’ in a trade or business, which makes it difficult to determine how the NIIT should apply to trusts and estates in certain situations.

Adrienne Mikolashek, an attorney in the Office of Chief Counsel, indicated in an AICPA conference July 19 that they no longer expect to finalize the proposed regulation or to issue regulatory guidance with respect to the material participation standard for trusts and estates in the near future.

Having said that, she did go on to suggest that taxpayers should not expect significant changes to the proposed regulations when they ultimately are finalized, which is consistent with what she has indicated in the past. Nonetheless, it is starting to sound as if additional guidance may not be forthcoming this year.


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