Tax Notes Today, 2007 TNT 255-8 (November 21, 2007), has published an unofficial transcript of the November 14, 2007, IRS hearing on the proposed regulations regarding the deductibility pursuant to Internal Revenue Code Section 67(e) of certain costs incurred by estates and trusts. Several attorneys in private practice, trust company representatives and others (some speaking on behalf of professional organizations) offered comments on the proposed regulations.
The speakers urged the IRS to hold open the public comment period and postpone the implementation of the proposed regulations until after the United States Supreme Court issues its decision in the case of Michael J. Knight, Trustee of the William L. Rudkin Testamentary Trust v. Commissioner of Internal Revenue. Oral argument in the Knight/Rudkin case is scheduled for tomorrow. The Court will consider "[w]hether 26 U.S.C. ยง 67(e) permits a full deduction for costs and fees for investment management and advisory services provided to trusts and estates." Several speakers argued that implementing procedures to comply with the proposed regulations could be unnecessarily costly and, ultimately, a waste of resources, depending on the Supreme Court's ruling.
Some of the speakers described the impracticality of "unbundling" the various services provided by fiduciaries, determining which proportion of their fees is attributable to each separate service and determining whether the fee for each service is fully deductible pursuant to Section 67(e) or is subject to the general Section 67 two percent floor for deductibility.
Several speakers also questioned the legality of the proposed regulations, arguing that the proposed regulations are overly broad and inconsistent with the language of the statute. Some speakers also proposed "safe harbor" rules, ranging generally between 53 and 75 percent, for the percentage of fiduciary fees that would be presumed to fall within the Section 67(e) exception to the two percent floor.
Posted by Melissa May, Estate and Gift Tax Developments Columnist, Wealth Strategies Journal
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