October 23, 2006

Deducting Investment Advisor Fees Paid by Trusts

Houston Tax Attorney Blog

Houston Tax Attorney

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There has been a split in the various circuit courts of appeals regarding the deductibility of investment advisor fees paid by trusts. The Second Circuit Court of Appeals, in William Rudkin Testamentary Trust v. Commissioner of Internal Revenue, recently held that investment advisor fees paid by trusts are limited by the Section 67 two percent floor imposed on miscellaneous Schedule A itemized deductions. Previously the Sixth Circuit Court of Appeals ruled that the two percent floor did not apply to investment advisor fees paid by trusts and the Federal Circuit and the Fourth Circuit Courts of Appeals ruled that the two percent floor did apply to investment advisor fees paid by trusts. The result: the federal deduction for investment advisor fees paid by trusts is not subject to the two percent floor in Michigan, Kentucky, Ohio, or Tennessee, but they are in New York, Vermont, Connecticut, Virginia, West Virginia, Maryland, North Carolina, South Carolina, and the District of Columbia.

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