Clarification on Deductibility of Advisory Fees

The IRS reissued a proposed regulation that would clarify when a taxpayer may fully deduct an estate’s or nongrantor trust’s investment advisory expenses for income tax purposes. Typically, advisory expenses are subject to severe restrictions that can significantly reduce the expense’s deductibility.

In Knight v. Commissioner, the United State Supreme court clarified which of an estate’s and nongrantor trust’s expense are subject to the two percent floor for itemized deductions. The court stated that expenses that are unique to estates and nongrantor trusts are not subject to the floor, while expense that are “customarily” or “commonly” incurred when an individual holds property are subject to the two percent floor when incurred by an estate or nongrantor trust.

See Robert Bloink, Esq., LL.M. and William H. Byrnes, Esq., IRS Clarifies Deductibility of Advisory Fees by Estates and Trusts, Advisory FYI, Sep. 19, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.