Is a business that performs vocational evaluations for Vocational Rehabilitation considered an SSTB under the new 199A deduction rules?

[Dan14]

We have an S-Corp that does vocational evaluations for Vocational Rehabilitation (VR, a state governmental agency with the goal of helping disabled individuals to get employed, re-employed or maintain employment). The evaluation assesses the referred individual's skills, aptitudes and interests in order to help make sure they pursue a viable path. A report is generated and submitted to the individual's VR counselor with these findings. I have read the IRS guidelines for what constitutes an Specified Service Trade or Business (SSTB) many times and am still unsure if this type of business should be classified as an SSTB or not. The SSTB category that gives me pause is "consulting". Do you think this type of business would fall under the category of consulting (or other category) and would therefore be considered to be an SSTB?

Thanks,

Dan

[Ashby]

As you have found out, the SSTB is as vague as it is broad. I imagine that the list will get defined more in years to come, but all of this is brand new. The two things that you should give you pause are consulting and the wide-ranging phrase "where the principal asset is the reputation or skill of one or more of its employees." 

I can not tell you whether to define yourself as SSTB or not, but the service seems more like assessing and evaluating than consulting. However, if this business is a business only because of your expertise, then you are probably SSTB.

[Dan14]

Thanks for the response. I am on the fence because a vocational evaluator does provide advice, but really seem like a consultant in a traditional sense. Now if they were primarily doing expert testimony as a vocational expert then I would think that they would be considered to be a consultant. Also, it doesn't seem to be excluded by the "Health" category either. Actually, Vocational Rehabilitation itself is part of the Department of Education. Regarding the "where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees" clause, at first I thought this would definitely make the business an SSTB. In fact, this is why most small businesses get hired - a positive reputation or skill, which would cause almost all small businesses to be considered SSTBs. However, the IRS offered the following additional guidance on this clause, significantly narrowing its scope. It seems that it was meant to capture celebrities, endorsement and the like so it does not apply to our type of business.

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Thus, proposed § 1.199A–5(b)(2)(xiv) limits the meaning of the “reputation or skill” clause to fact patterns in which the individual or RPE is engaged in the trade or business of: (1) receiving income for endorsing products or services, including an individual’s distributive share of income or distributions from an RPE for which the individual provides endorsement services; (2) licensing or receiving income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity, including an individual’s distributive share of income or distributions from an RPE to which an individual contributes the rights to use the individual’s image; or (3) receiving appearance fees or income (including fees or income to reality performers performing as themselves on television, social media, or other forums, radio, television, and other media hosts, and video game players).
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Does anyone have any additional thought on our vocational evaluation business?

Thanks,
Dan