What is the basis for concluding that a director is not included in the 'consulting' SSTB category under Section 199A?
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The basis for concluding that a director is not included in the "consulting" specified service trade or business (SSTB) category under Section 199A is found in the detailed definitions and examples provided in Treasury Regulation §1.199A-5.
Key Legal Details
- Definition of Consulting SSTB: The regulation defines the field of consulting as the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems. It specifically includes advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency, and lobbying activities. However, it explicitly excludes services other than advice and counsel, such as sales or the provision of training and educational courses. The determination of whether services are consulting is based on all the facts and circumstances, including how the taxpayer is compensated.
- Directors and the Consulting SSTB: The regulation does not list "directors" as a profession or role that is per se included in the consulting SSTB. Instead, it provides that only those who are providing professional advice and counsel to clients are considered to be engaged in consulting. Directors, in their capacity as members of a board of directors, generally do not provide advice and counsel to clients for a fee; rather, they govern or oversee the management of a corporation or organization. Their role is distinct from that of a consultant, who is engaged by a client to provide advice or solve specific problems.
- Examples and Exclusions: The regulation provides examples to clarify the scope of consulting. For instance, it distinguishes between a business that provides advice and recommendations to clients (which is consulting) and a business that provides temporary workers or licenses software (which is not consulting, even if some advice is given in the process). The regulation also makes clear that services embedded in or ancillary to another non-SSTB business (such as a building contractor providing some advice as part of a construction project) are not considered consulting if there is no separate payment for the advice.
- No Presumption for Directors: Nowhere in the regulation is it stated or implied that serving as a director, by itself, constitutes consulting for purposes of Section 199A. Unless a director is separately compensated for providing professional advice and counsel to a client (in which case they may be acting as a consultant), their activities as a director do not fall within the consulting SSTB category.
- Regulatory Intent and Narrow Construction: The regulatory history and economic analysis confirm that the IRS and Treasury intended to narrowly construe the SSTB categories, including consulting, to avoid over-inclusion. The focus is on the nature of the services provided and the relationship to the client, not merely the title or position held by the individual.
Conclusion
A director is not included in the "consulting" SSTB category under Section 199A unless the director is separately engaged in providing professional advice and counsel to clients for a fee. The mere act of serving as a director, which involves governance and oversight rather than client-focused advisory services, does not meet the regulatory definition of consulting for SSTB purposes.
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