On December 11, 2008, the Internal Revenue Service released Notice 2008-116
extending its no-unbundling-of-unitary fees pronouncement to 2008 fiduciary
income tax returns.
Earlier in the year, the Internal Revenue Service released Notice 2008-32,
reacting to the Supreme Court’s unanimous holding in Michael J. Knight,
Trustee v. Commissioner, 552 U.S. ___ (No. 06-1286, Jan. 16, 2008), that
trust investment advisory fees are subject to the “2% floor” of section 67(a) of
the Internal Revenue Code. That Notice confirmed that fiduciaries preparing 2007
income tax returns would not be required to “unbundle” a unitary fiduciary fee
to separately state the components of the fee that are subject to the 2% floor.
Revenue Service Confirms That ‘Unbundling’ of 2007 Unitary Fiduciary Fees Is Not
Needed” and our
Trusts and the 2% Floor analysis on section 67(e) and the Knight
decision in light of Notice 2008-32.
Notice 2008-116 modifies Notice 2008-32 and further relieves trustees of the
need to unbundle their fees for 2008 returns. Trusts may deduct the full amount
of the bundled fiduciary fees for 2008 without regard to the 2% floor, but
payments by trustees to third parties for expenses subject to the 2%
floor are readily identifiable and must be treated separately from the otherwise
bundled fiduciary fees.
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