Supreme Court to hear case on deduction of fees for investment advice
Internal Revenue Code section 67(a) states that, "In the case of an individual, miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income."
Trusts receive essentially the same treatment as individuals for this calculation, however the Code section states, "For purposes of this section, the adjusted gross income of an estate or trust shall be computed in the same manner as in the case of an individual, except that -
(1) the deductions for costs which are paid or incurred in connection with the administration of the estate or trust and which would not have been incurred if the property were not held in such trust or estate, and
(2) the deductions allowable under sections 642(b), 651, and 661, shall be treated as allowable in arriving at adjusted gross income."
The Court will determine if the fees "would not have been incurred if the property were not held in such trust," in which case the fees would not be subject to the 2 percent limitation. The U.S. Court of Appeals for the Second Circuit and the Tax Court have held that full deductibility of expenses only applies to expenses that are incurred in a trust setting, and that investment advice fees are not protected under this umbrella and are thus subject to the 2 percent limitation.