Tax News

CCH (cch.taxgroup.com) reports:

The Treasury and the IRS have proposed regulations that would clarify the 2-percent floor for itemized deductions as applied to expenses paid by estates and non-grantor trusts. The regulations would apply to payments made after the date the final regulations are published in the Federal Register.
Under the proposed regulations, only costs incurred by estates and non-grantor trusts that are unique to an estate and trust are excluded from the two-percent floor that applies to miscellaneous itemized deductions. For this purpose, a cost is unique to an estate or trust if it cannot be incurred by an individual in connection with property that is not held in an estate or trust. Costs that are not unique to an estate or trust are subject to the 2-percent floor. If an estate or non-grantor trust pays a single fee that includes both unique and non-unique costs, the estate or trust must use a reasonable method to allocate that fee between the two types of cost. These rules do not apply to expenses that are otherwise excluded from the definition of miscellaneous itemized deduction, or to expenses related to a trade or business.
CCH Comment. Under the proposed regulations, whether costs are subject to the 2-percent floor depends on the type of services provided, rather than the taxpayer's characterization or label for the services. Thus, taxpayers cannot avoid the 2-percent floor by bundling investment advisory fees and trustee's fees into a single expense.
A non-exclusive list of products or services that are unique to estates and trusts includes those rendered in connection with fiduciary accountings; judicial or quasi-judicial filings required as part of the administration of the estate or trust; fiduciary income tax and estate tax returns; the division or distribution of income or corpus to or among beneficiaries; trust or will contests or construction; fiduciary bond premiums; and communication with beneficiaries regarding estate or trust matters. A non-exclusive list of products or services that are not unique to estates and trusts includes those rendered in connection with custody or management of property; advice on investing for total return; gift tax returns; the defense of claims by creditors of the decedent or grantor; and the purchase, sale, maintenance, repair, insurance or management of non-trade or business property.
CCH Comment. The proposed regulations adopt the view that the 2-percent floor applies to a trust expense that is commonly or customarily incurred by individuals ( Mellon Bank, N.A, CA-FC, 2001-2 USTC ¶50,621), and can be avoided only when the expense is peculiar to trusts ( W.L. Rudkin Testamentary Trust, CA-2, 2006-2 USTC ¶50,569). The regulations reject the view that trust expenses can be excluded if they are necessary to meet specific fiduciary obligations imposed by state law ( W.J. O'Neill, Jr. Irrevocable Trust, CA-6, 93-1 USTC ¶50,332).
Comments and Hearing
Comments on the proposed regulations must be received by the IRS by October 25, 2007. A public hearing is scheduled for November 14, 2007, in the IRS Auditorium in the Internal Revenue Building, 1111 Constitution Ave. NW., Washington, D.C. Outlines of topics to be discussed at the hearing must be received by October 24, 2007. Electronic submissions can be made via the Federal eRulemaking Portal at http://www/regulations/gov/ (indicate IRS and REG-128224-06). Other submissions can be sent to CCA:LPD: PR (REG-128224-06), Room 5203, IRS, PO Box 7604, Ben Franklin Station, Washington D.C. 20044; or hand-delivered to CCA:LPDR (REG-128224-05), Courier's Desk, IRS, 1111 Constitution Ave., NW., Washington, D.C.
Proposed Regulations, NPRM REG-128224-06, 2007FED ¶49,754
Other References:
Code Sec. 67
CCH Reference - 2007FED ¶6063AG
Tax Research Consultant
CCH Reference - TRC ESTTRST: 12,054