On April 1, 2010, the Internal Revenue Service released
2010-32, extending its no-unbundling-of-unitary-fees pronouncements to 2009
fiduciary income tax returns.
Previously, the Internal Revenue Service released Notices
2008-116, reacting to the Supreme Court’s unanimous holding in
Michael J. Knight, Trustee v. Commissioner, 552 U.S. 181 (2008), that
trust investment advisory fees are subject to the “2% floor” of section 67(a) of
the Internal Revenue Code. Those Notices confirmed that fiduciaries preparing
2007 and 2008 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. See “Extension
of Interim Guidance on Deductibility of Investment Advisory Fees by Trusts”
Trusts and the 2% Floor analysis on section 67(e) and the Knight decision in light of Notice 2008-32.
Notice 2010-32 relieves trustees of the need to unbundle their fees for 2009
returns, that is, returns for taxable years that began before January 1, 2010.
Trusts may deduct the full amount of the bundled fiduciary fees for 2009 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.
It is likely that final regulations on the application of the 2% floor to
trusts were near completion before the end of 2009 and that the IRS did not
expect to extend this relief for another year. If so, this may be another
example of how the inability of Congress to act before the end of 2009 to
stabilize the estate tax law for 2010 has created a distraction for those in the
Government who write tax guidance as well as for fiduciaries, clients, and
estate planners who must follow that guidance.
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