Friday, September 09, 2011

Knight regs. are withdrawn

Fees paid for investment management services are subject to a floor of 2% of AGI.  Trust fees are generally fully deductible. In Knight in 2008 the U.S. Supreme Court held that the 2% rule should apply to investment management fees paid by a trustee to an outside investment advisor. Going further, the Court held that only fees incurred because the assets were in an estate or trust (such as trust accounting fees) are fully deductible, and any expenses that individuals might also incur are subject to the 2% of AGI limitation.

IRS has had some trouble with the regulations implementing this decision, particularly on the issue of unbundling of trust fees into components.  The Proposed Regulations on the subject were withdrawn on September 6.  New hearings will be held in December, and new Regs. won't take effect before 2013.

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