Which activities performed by a director would not be considered consulting under the SSTB rules?
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To determine which activities performed by a director would not be considered “consulting” under the specified service trade or business (SSTB) rules for purposes of section 199A, it is necessary to analyze both the regulatory definition of “consulting” and relevant IRS guidance and case law.
1. Definition of Consulting under Section 199A
The Treasury Regulations provide that, for section 199A purposes, “consulting” means the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems. Consulting includes providing advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency and all attempts to influence legislators and other government officials on behalf of a client by lobbyists and other similar professionals performing services in their capacity as such. However, the regulations specifically exclude from “consulting” the performance of services other than advice and counsel, such as sales (or economically similar services) or the provision of training and educational courses. Additionally, consulting services embedded in, or ancillary to, the sale of goods or performance of services on behalf of a trade or business that is otherwise not an SSTB are not considered consulting if there is no separate payment for the consulting services.
2. Activities of a Director: Guidance from IRS Rulings
IRS Technical Advice Memorandum (TAM) 9529002, which interprets the “consulting” field for purposes of the qualified personal service corporation rules (which use a similar definition to section 199A), states that “consulting” is “the provision of advice and counsel.” Activities that are not advice and counsel, or that are not incident to the actual performance of consulting, are not considered consulting. The TAM distinguishes between qualifying and nonqualifying activities, noting that only those activities that are “incident to the actual performance of services in a qualifying field” (such as consulting) are included, and that “incident” is used in a narrow sense—meaning the activity must contribute towards, and be necessary to, the performance of the qualifying activity.
3. Examples of Director Activities Not Considered Consulting
Based on the above, the following activities performed by a director would not be considered consulting under the SSTB rules:
- Administrative and Support Services: Activities such as attending board meetings, voting on resolutions, reviewing financial statements, or fulfilling statutory governance duties that do not involve providing advice or counsel to a client are not consulting. These are governance or oversight functions, not advisory services.
- Supervision of Employees: Supervising employees or overseeing the implementation of company policies, unless it involves providing professional advice and counsel to a client, is not consulting.
- Execution of Routine Corporate Duties: Signing documents, authorizing transactions, or other routine corporate actions that do not involve the provision of advice or counsel to a client are not consulting.
- Participation in Business Operations: Activities such as managing day-to-day operations, handling internal company matters, or making business decisions as part of the board’s collective responsibility are not consulting unless they involve providing advice and counsel to a client.
- Incidental Activities Not Directly Related to Consulting: Activities that are not necessary to, or do not contribute to, the actual performance of consulting services (as narrowly defined) are not considered consulting, even if they are part of a broader contract that includes consulting services.
The TAM specifically rejects a broad definition of “incident to consulting” that would include any activity normally part of a contract whose principal purpose is consulting. Only those activities that are necessary to, and contribute towards, the actual performance of consulting services are included.
4. Summary Table
5. Conclusion
In summary, only those director activities that involve the provision of professional advice and counsel to a client (or are necessary and incident to such advice and counsel) are considered “consulting” under the SSTB rules. Routine governance, administrative, supervisory, or operational activities performed by a director that do not involve providing advice or counsel to a client are not considered consulting for purposes of section 199A.
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