Do partnerships involved in the production of commercials face different SSTB considerations compared to sole proprietors?

Partnerships and sole proprietors involved in the production of commercials are subject to the same legal framework for determining whether their activities constitute a specified service trade or business (SSTB) under section 199A. The SSTB rules do not distinguish between entity types (such as partnerships versus sole proprietors) for purposes of the SSTB determination. Instead, the analysis focuses on the nature of the activities conducted, not the form of the business entity.

1. Legal Framework for SSTB Determination

Section 199A(d)(2) defines an SSTB as any trade or business involving the performance of services in certain fields, including performing arts, consulting, health, law, accounting, actuarial science, athletics, financial services, brokerage services, investing and investment management, trading, dealing in securities, partnership interests, or commodities, or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners.

Treas. Reg. § 1.199A-5(b)(2)(vi) clarifies that the "field of performing arts" includes services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such. However, it does not include services that do not require skills unique to the creation of performing arts, such as maintenance and operation of equipment or facilities, or the broadcasting or dissemination of video or audio of performing arts to the public.

Treas. Reg. § 1.199A-5(b)(2)(vii) further clarifies that consulting is limited to providing professional advice and counsel, and does not include services such as sales or the provision of training and educational courses, unless those are separately compensated as consulting.

2. Application to Commercial Production

The production of commercials may involve a variety of activities, including:

• Creative direction (e.g., directors, actors, writers)
• Technical services (e.g., camera operators, editors, lighting technicians)
• Production management and logistics
• Post-production editing and effects

Key considerations:- If the partnership or sole proprietor is engaged in the creative aspects of producing commercials (e.g., acting, directing, writing), those activities may fall within the "field of performing arts" and thus be considered an SSTB.- If the business is primarily engaged in technical or support services (e.g., equipment rental, editing, logistics) and not in the creative performance or direction, those activities are generally not considered SSTBs under the regulations.- If the principal asset of the business is the reputation or skill of one or more employees or owners (for example, a well-known director or actor whose name is used to market the business), the business may also be classified as an SSTB under the "reputation or skill" prong.

3. No Distinction Based on Entity Type

The SSTB rules apply equally to all non-corporate taxpayers, including partnerships, S corporations, and sole proprietors. The determination of whether a business is an SSTB is based on the activities performed, not on whether the business is operated as a partnership or a sole proprietorship.

4. De Minimis and Incidental Rules

Both partnerships and sole proprietors can benefit from the de minimis rule: if less than 10% (for businesses with $25 million or less in gross receipts) or 5% (for businesses with more than $25 million in gross receipts) of gross receipts are attributable to SSTB activities, the business is not treated as an SSTB.

5. Conclusion

There is no difference in the SSTB considerations for partnerships versus sole proprietors involved in the production of commercials. The analysis is based on the nature of the services provided, not the form of the business entity. Both must evaluate whether their activities fall within the fields listed as SSTBs, particularly the field of performing arts, consulting, or whether the principal asset is the reputation or skill of the owners or employees. The same de minimis and incidental rules apply to both entity types.

If you have a specific fact pattern (e.g., the roles performed by the partnership or sole proprietor in the production process), a more tailored analysis can be provided.