Supreme Court Rules on 2% Floor for Estate or Trust Investment Advisory Fees

CPA Letter, The, March, 2008 by Anonymous

news update

On Jan. 16, the Supreme Court unanimously ruled in Knight v. Commissioner that investment advisory fees of nongrantor trusts and estates generally are subject to the 2% of adjusted gross income floor as miscellaneous itemized expenses, unless they are not "commonly incurred" by individuals. The case resolves a seven-year-old circuit split on the issue (The CPA Letter, Jan.). Knight v. Commissioner was known as Rudkin Testamentary Trust v. Commissioner in lower court proceedings.

The dispute centered on the exemption under IRC § 67(e) from the floor of expenses that "would not have been incurred if the property were not held in such trust or estate." While agreeing with the second Circuit's result, the Supreme Court criticized its reasoning. Justice Roberts,...

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