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The IRS just this afternoon issued Notice 2010--32 which indicates that its prior notice 2008--32 giving interim guidance on the deductibility of investment advisory fees after the issuance of the US Supreme Court's decision in Knight ,Trustee of Rudkin Trust v. Commissioner, 552 U.S. 181, 128 S. Ct. 782 (2008) will remain in effect.

http://www.irs.gov/pub/irs-drop/n-10-32.pdf

The IRS expects someday to issue regulations under section 1.67-4 consistent with the Supreme Court's holding.

Most importantly, these regulations will address the issue raised when a non-grantor trust or estate pays a bundled fiduciary fee for costs incurred by the fiduciary, some of which are considered to be subject to the 2% floor and some of which are fully deductible without regard to the 2% floor.

The IRS wisely concluded that these regulations may not be issued in time applicable for the 2009 tax year.

So with regard to these fiduciary fees where the investment component is not separate from and executors or trustees fee, we can continue to deduct them without reference to the 2% floor for tax years beginning in 2009.

Eventually, the IRS will issue these regulations -- note that the real importance of this unbundling will be on the alternative minimum tax for beneficiaries of trusts and estates. This is so because deductions which are subject to the 2% floor are also an adjustment for alternative minimum tax purposes. This means for some, even many, trust beneficiaries, whatever portion of the trustee's fee is deemed to be investment advice may well be taxed at 26 or 28%

Please read the important information relating to tax advice at the bottom of this web page.

Best regards,
Bob Wolf, Moderator

“Any tax advice in the foregoing message was not intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties that may be imposed with respect to the matters addressed. Some of that advice may have been written to support the promotion or marketing of the transactions or matters addressed within the meaning of IRS Circular 230, in which case, be advised that the advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek advice based on your particular circumstances from an independent tax advisor.”