Recent Developments
Trust's Deduction for Investment Advisory Fees
Supreme Court held that testamentary trust's investment advisory fees were subject to IRC 67(a)'s 2% AGI floor, and not eligible for IRC 67(e)(1)'s full deduction exception. Interpreting IRC 67(e)(1)'s “would” terminology and its counterfactual deductibility test, Court rejected both trustee's attempt to frame test as one of straightforward causation and 2d Cir.'s formulation of exacting “could/could not” test, and instead held that statute's inquiry into whether particular cost “would not have been incurred” if property were held by individual turned on whether subject costs were uncommon or unusual for such hypothetical individual to incur. So, because it wouldn't be uncommon or unusual for individuals to hire investment advisors or incur investment advisory fees in general, and because trustee didn't prove to contrary or show that specific fees here resulted from any differing treatment of trust vs. individuals, IRC 67 (e)(1) exception wasn't met. Trustee's argument that Connecticut law's prudent investor rule required that he solicit investment advice was misguided because it wouldn't have been uncommon for prudent individual investor with same investment objectives as trust to do same. Court noted that trust investment advisory fees could possibly qualify for exception, such as in case of trust with unusual investment objectives or specialized balancing concerns, which wasn't shown here. (Knight v. Comm., S Ct, 101 AFTR 2d)
