Taxation & Estate Planning

BUNDLED INVESTMENT FEES GAIN ANOTHER REPRIEVE

By Charles Rubin

In the 2008 Supreme Court case of Knight v. Comm., investment advisory fees paid by a trust were held to be subject to the ?greater than 2% of adjusted gross income? deduction limits of Code Section 67(a). Oftentimes, banks, brokers, and trust companies impose only one ?bundled? fee for all services performed. Proposed regulations indicated that taxpayers would need to unbundle the fee somehow to allocate the fees among investment fees that are subject to the 2% limit and those that items that are deductible without regard to the 2% limit.

These regulations have not been finalized yet. In Notice 2008-32, the IRS provided interim guidance that for tax years before 2008, taxpayers would not be required to unbundle the fee to determine a portion of the fee that is subject to the 2% floor. It extended this guidance to tax years beginning before January 1, 2009 in Notice 2008-116.

The IRS has now extended the same guidance to tax years beginning before January 1, 2010, thus allowing full deductibility for bundled fees without regard to the 2% floor. This guidance applies to nongrantor trusts and estates.

Notice 2010-32

Full post as published by Rubin on Tax on April 04, 2010 (boomark / email).