What Is IRS Form 8996 and Who Is Required to File?

Pass-through entities can group multiple businesses for the Qualified Business Income (QBI) deduction by making an aggregation election. This choice, documented in a statement attached to the annual tax return, allows related businesses to be treated as a single entity. This is done for calculating the QBI deduction under Internal Revenue Code Section 199A, which can potentially increase the deduction amount. The decision to aggregate is filed with the entity’s main tax return, such as a Form 1065 for partnerships or Form 1120-S for S corporations. The entity’s owners then use the combined figures from the aggregation to calculate their personal QBI deduction, which is reported on their individual tax returns.

Who Can Make the Aggregation Election

The responsibility for making an aggregation election rests with pass-through entities, not individual taxpayers. The specific entities that can make this election are partnerships, S corporations, estates, and trusts, which file the election on behalf of their owners. An individual who owns multiple businesses through sole proprietorships would make a similar election on their personal return, but the entity-level election is distinct.

Making an aggregation election is entirely optional. An entity is only required to prepare this disclosure statement if it operates two or more trades or businesses and chooses to combine them for the QBI deduction. The choice is made when the entity determines that combining the QBI, W-2 wages, and unadjusted basis immediately after acquisition (UBIA) of qualified property from multiple businesses will result in a more favorable QBI deduction for its owners.

Understanding the Aggregation Rules

Before an entity can elect to aggregate its businesses, it must meet a strict set of criteria. The foundational requirement is a common ownership test, where the same person or group of people must directly or indirectly own 50% or more of each trade or business being combined for a majority of the tax year. All businesses included in the aggregation must have the same tax year-end. A restriction is that none of the businesses can be a specified service trade or business (SSTB), such as those in health, law, or accounting, which are barred from being aggregated with non-SSTB activities.

Beyond these initial tests, the businesses must demonstrate a degree of economic integration by satisfying at least two of the following three factors. The businesses may provide products or services that are the same or are customarily offered together, such as a bakery and a coffee shop. They might also share facilities or significant centralized business functions, like a single accounting department or IT infrastructure. Lastly, they could operate in coordination with or reliance on each other, such as through integrated supply chains.

Rental Real Estate Enterprise Safe Harbor

A rental real estate enterprise can be treated as a trade or business for QBI purposes if it meets a safe harbor rule. This requires that separate books and records are maintained for the enterprise, and at least 250 hours of rental services are performed annually. These services can include maintenance, rent collection, and tenant management. If an owner has multiple rental properties that each meet this test, they can be aggregated under the general rules to be treated as one large business for the QBI calculation.

Information Required for the Aggregation Statement

To make the aggregation election, an entity must prepare a disclosure statement to attach to its tax return. While there is no official IRS form for this entity-level election, tax software often generates a standardized statement. For individuals with higher income who file Form 8995-A, this information is formally organized on Schedule B, “Aggregation of Business Operations.”

The statement must begin by identifying the aggregated group and providing a detailed explanation of how the group meets the aggregation rules. If there have been any changes to the aggregated group since the prior year, such as the formation or disposition of a business, these changes must be described. For every business included in the group, the entity must list its legal name and Employer Identification Number (EIN).

Following this, the statement must report three specific financial figures for each business separately: its share of Qualified Business Income (QBI), its allocable W-2 wages, and its allocable UBIA of qualified property. The statement then requires the entity to sum these individual amounts to produce a combined total for the entire aggregated group. It is this set of combined totals that will be passed on to the entity’s owners for their tax calculations.

Filing and Post-Filing Reporting

The completed aggregation election statement must be attached to the entity’s timely filed income tax return for the year the election takes effect. For a partnership, this means attaching it to Form 1065, and for an S corporation, it is attached to Form 1120-S. The election is binding for that tax year and all subsequent years and cannot be revoked unless there is a significant change in circumstances that makes the aggregation invalid.

After the entity files its return, it has a continuing reporting obligation to its owners. The entity must provide each owner with an attachment to their Schedule K-1 detailing their share of the combined QBI, W-2 wages, and UBIA from the aggregated group. The statement must clearly indicate that these figures represent an aggregated activity. The owners then use this aggregated information to calculate their personal QBI deduction on their own tax returns, as the entity’s decision to aggregate is binding on them.