Article on Deducting Attorney’s Fees

Wesley L. Bowers recently published an Article entitled, Decoding the Deduction: What’s the Right Form to Use for Professional Fees?, Tr. & Est. 30 (Apr. 2017). Provided below is an abstract of the Article:

Given our current tax environment, more and more estate planning and administration professionals are diving (often times, reluctantly) into the abyss of the income tax world. One of the more frequent questions asked by attorneys, CPAs and other professionals during an estate administration is: “Where should we deduct professional fees (attorney, CPA, appraisal, etc.): on Form 706 or Form 1041?” What seems like a simple question at first blush is often extremely complicated and takes you through a labyrinth of decision trees, regulations and case law.

The traditional answer of where to deduct professional fees was often to deduct them on Form 706, simply because more estates were subject to the estate tax in prior years when the exemptions were significantly lower, and the estate tax rate was traditionally much higher than an estate’s income tax rate. Now, however, this question has become even more complicated to answer due in large part to the proximity between the effective estate tax rate (currently, 40 percent) and an estate’s income tax rate (currently, a top bracket of 39.6 percent, with a potential 3.8 percent net investment income tax). In addition, the introduction of portability has changed the traditional estate-planning model, and more estate tax returns are now filed when not otherwise required to take advantage of the portability features. With so many recent changes and a myriad of possible planning structures, it’s no wonder many are confused as to how to answer a seemingly simple question: “Where should I deduct attorney’s fees?”