Anatomy of a Victory: Behind MBA’s Work on IRS Pass-Through Deduction

On January 18, the Treasury Department and the Internal Revenue Service issued final regulations providing guidance on the section 199A pass-through deduction included in the Tax Cuts and Jobs Act.

The final regulations ( provide clarity on certain matters of importance to the Mortgage Bankers Association and its members. Specifically, the final regs include an MBA-recommended provision that mortgage banking companies, including independent mortgage bankers, are not trades or businesses considered to be Specified Service Trades or Businesses (SSTBs) and, therefore, should be eligible for the pass-through deduction.

As originally proposed in August, the regulations provided some guidance, but did not provide sufficient clarification on whether a mortgage banking company that is organized as a pass through entity is eligible for the deduction. MBA engaged in extensive advocacy during all stages of this rulemaking on behalf of its residential independent mortgage bankers and community banks.

“MBA got a big win on this one,” said Pete Mills, MBA Senior Vice President of Residential Policy and Member Engagement. “The IRS took our recommendations on both the ‘financial services’ prong–excluding ‘making loans–and the ‘dealing in securities’ prong–excluding making and selling loans. As a result, residential IMBs organized as pass-throughs that operate in the retail, consumer direct and wholesale lending segments that originate and sell mortgages are not SSTBs, and therefore are eligible for the pass-through deduction.”

Mills said MBA strongly urges members to work with their advisors and consultants to determine how the rules could impact their individual fact patterns; especially where an entity is engaged in activities other than retail, consumer direct and wholesale lending.

Fran Mordi, MBA Associate Vice President for Residential Policy, said as part of the rulemaking process after passage of the Tax Cut and Jobs Act, MBA met on multiple occasions with Treasury/IRS, Office of Management & Budget and staffs on the House Ways and Means Committee and the Joint Tax Committee and filed comments before and after the proposed rule.

“The clarity provided by these regulations will not only benefit IMBs, but also subchapter S banks that make and sell loans,” Mordi said.

MBA created a summary of the final regulations (

Mordi said MBA will continue to analyze the final guidance and may seek further clarity from the IRS, if needed, to ensure broad eligibility for members engaged in all types of mortgage banking activities.

“This is the kind of member value we deliver across a wide array of issues, with a particular focus on the needs of IMBs,” she said. “We are grateful for the broad support we’ve received from our members.”