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Tuesday, June 26, 2007

GUIDANCE COMING ON DEDUCTIBILITY OF INVESTMENT FEES BY TRUSTS

Since the early 1990's, taxpayers and the IRS have been battling over the issue whether investment advisory fees paid by a trust are fully deductible, or deductible only to the extent that they exceed 2% of the trust's adjusted gross income (AGI). Taxpayers assert that the 2% limitation does not apply, due to Code Section 67(e)1) which provides that costs paid or incurred in connection with the administration of a trust that would not have been incurred if the property was not held in the trust are fully allowed as deductions in arriving at adjusted gross income.

The IRS and various court opinions are at odds as to the proper interpretation of the law. Acting in its role as arbiter of these conflicts, the U.S. Supreme Court agreed on June 25 to take on the issue, and hopefully provide the final word.

William L. Rudkin Testamentary Trust u/w/o Henry A. Rudkin, Michael J. Knight, Trustee
(CA 2 10/18/2006), cert granted 6/25/2007
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