Nonacquiescence in O'Neill.

• Author: Barnett, Bernard
• Position: Itemized deduction rules for investment advice fees incurred by trustees - Brief Article

Although the IRS did not appeal the Sixth Circuit's decision in William J. O'Neil, Jr. Irrevocable Trust, 994 F2d 302 (1993), rev'g 98 TC 227 (1992), it announced that it will not follow that decision except for cases arising in the Sixth Circuit. (See nonacquiescence in IRB 1994-38, 4.)

Trusts and estates, like individuals, may generally deduct miscellaneous itemized deductions only to the extent that these deductions exceed 2% of adjusted gross income - except that costs unique to the administration of a trust or estate are fully deductible under Sec. 67(e)(1).

For individuals, the 2% floor applies to investment advice. But the inexperienced trustees of the William J. O'Neill, Jr. Trust believed they needed such advice and deducted the full 1987 fees of $15,374. The Service asserted that the 2% floor applied and the Tax Court agreed. But the Court of Appeals reversed, stating that the fees were fully deductible; they stemmed from fiduciary duties and would not have been incurred if the assets had not been held in trust. (See Tax Trends, "Trust May Deduct Investment Advisory Fees in Full; 6th Cir. Reverses TC," TTA, Aug. 1993, at 535.)

The IRS's position is patently wrong, particularly in view of the American Law...