Supreme Court holds investment advisory fees are subject to 2% floor.

• Jurisdiction: United States
• Author: Nevius, Alistair M.
• Date: 01 March 2008

Under Sec. 67(a), miscellaneous itemized deductions are allowed only to the extent that they exceed 2% of a taxpayer's adjusted gross income (AGI). The AGI of an estate or trust is computed in the same manner as for an individual for these purposes, except that, under Sec. 67(e)(1), administrative costs that "would not" have been incurred if the property were not held in an estate or mast are allowed in full as deductions in arriving at AGI (i.e., they are not subject to the 2% floor).

Courts have sprit over what trust administrative costs fall under this exception. For example, the Sixth Circuit has held that investment advisory fees are not subject to the 2% floor and are fully deductible (O'Neill, 994 F2d 302 (6th Cir. 1993)). In contrast, the Second, Fourth, and Federal Circuits have all held that...