Thomas Drake is a small business owner, operating a manufacturing plant in Chicago, Illinois (as an S-Corp.) He has heard about a new tax break called Section 199A (deduction for qualified business income) wherein he may be entitled to a deduction of up to 20% of his qualified business income. If he can qualify for this deduction, it would result in significant tax savings for his business. Consequently, he contacts your accounting firm to find out exactly what this deduction entails, and how, or if, he can qualify.

Thomas provides the CPA firm with the following information regarding his 2018 estimated income from his business, Rebecca, his spouses income, and asset and payroll information related to his company. (Thomas and Rebecca file married filing jointly.)

Item	Amount
Net Income from Operations (S Corp)	$175,000
Spouse's (Rebecca) Income (from unrelated business)	$50,000
Corporate Payroll	$150,000
Corporate Total Assets	$1,500,000
Taxable Income from Form 1040	$160,000
(Total Tax for Drake's after allowable deductions unrelated to the business)

Your team will prepare a tax research memorandum detailing the statutory framework of this deduction, a thorough explanation of Section 199A and all the key definitions, a determination of whether Thomas qualifies for the deduction, a determination of the amount of this deduction, and what Thomas could do to maximize this deduction in the future. The memorandum must be supported by tax research using IRC code, tax cases if any, and other scholarly journals and references. Since some of this data is estimated, he is asking for a general analysis of his tax situation relative to this deduction.

Some specific issues which must be addressed are the following:

• What is qualified business income (QBI)? What is included and what is not?
• What is a qualified trade or business (SSTB)?
• Any limitations, income or otherwise on this deduction?
• What are some planning strategies for help Thomas maximize this deduction in future years?
• What is an estimate of the amount of the deduction for 2018, if any?

The memorandum should be 7 10 pages with references to the IRC code and other tax support.