Practical Tax Strategies
Thomson Reuters (Tax & Accounting) Inc.
Place of Publication
On Jan 16, 2008, the IRS won an important decision in the Supreme Court, which held that investment advisory fees incurred by trusts are subject to the 2% floor for miscellaneous itemized deductions. The Supreme Court in Knight has resolved the long-existing judicial opinion split on the deductibility of trust and estate investment advisory fees. To interpret the statutory wording of Section 67(e) (1), the Supreme Court adopted the "commonly or customarily" standard, which is more taxpayer friendly than the "could not" standard used by the Second Circuit and the Service. Although the Supreme Court held that trust investment advisory fees are generally subject to the 2% rule, the Court also noted that investment advisory fees for special trust objectives are exempt from the 2% floor. In compliance with the Knight decision, the IRS has to revise its Prop Reg 1.67-4.
fees, charges, trusts, tax deductions, tax regulations, Prop. Reg. 1.67-4, Internal Revenue Code Section 67(e)(1)
Accounting | Taxation
Steven A. Hanke, Wei-Chih Chiang, and Ted D. Englebrecht (2008).
Strategize New Tax Environment for Investment: Advisory Fees of Trusts. Practical Tax Strategies.81 (4), 214-220. Boston, MA: Thomson Reuters (Tax & Accounting) Inc..
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