Trustees Relieved of "Unbundling" for 2009 Returns

April 2, 2010

On April 1, 2010, the Internal Revenue Service released Notice 2010-32, extending its no-unbundling-of-unitary-fees pronouncements to 2009 fiduciary income tax returns.

Previously, the Internal Revenue Service released Notices 2008-32 and 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” and our 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.

McGuireWoods Fiduciary Advisory Services

Fiduciary Advisory Services advises financial institutions and other clients about planning, tax, and fiduciary matters. This includes advising executors and trustees in managing risks, avoiding litigation, and handling litigation when it does arise.

McGuireWoods Private Wealth Services

Private Wealth Services is ranked by Chambers and Partners, the international rating service for attorneys, as one of two top-band private wealth services practice groups in the country, with professionals in several U.S. cities and in London, dedicated to estate planning and the analysis of related tax and fiduciary issues.

Subscribe
Back to top