IRS Allows Full Deduction for Bundled Fiduciary Fees Until Final Regulations Issued by David C. Morganelli, Esq. and Kimberly I. McCarthy, Esq.


For the fourth consecutive year, the Internal Revenue Service (IRS) has extended interim guidance permitting the full deductibility of bundled fiduciary fees incurred by a nongrantor trust or estate. The IRS issued Notice 2011-37 on April 13, 2011 and stated that it will continue to allow a full deduction, without regard to the 2% floor for miscellaneous deductions, to nongrantor trusts or estates that pay a bundled fiduciary fee for costs incurred in-house by the fiduciary until final regulations on this issue are published.

The IRS will detail in its regulations (consistent with the US Supreme Court’s holding in Michael J. Knight, Trustee of William L. Rudkin Testamentary Trust v. Commissioner, 552 U.S. 181 (2008) ) what portion of costs paid to an investment advisor by a nongrantor trust for bundled fiduciary fees will be fully deductible or subject to the 2% floor for miscellaneous deductions. Payments paid directly by a fiduciary to third parties for expenses subject to the 2% floor are deemed readily identifiable and must be treated separately from an otherwise bundled fiduciary fee.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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