Deductibility of Investment Advisory Expenses
The introduction is below:
This article addresses the federal income tax rules that govern the deductibility of investment advisory expenses incurred outside of a trade or business by individuals (including grantor trusts), estates and non-grantor trusts. Having spoken on the subject at various bar association meetings and other professional educational gatherings, it is clear that the topic generates significant confusion given its complex evolution and the growing complexity of our tax system. This article will (1) briefly set forth the historical position of Congress and the Internal Revenue Service (the “IRS”) on the deductibility of investment management expenses; (2) clarify the multifaceted current classification of investment advisory expenses; (3) outline the limitations on the deductibility of investment advisory expenses incurred by individuals (including grantor trusts), estates and non-grantor trusts under current law; and (4) by example illustrate the significant impact that these limitations have on those taxpayers that have high adjusted gross income (“AGI”) or are subject to the alternative minimum tax regime.