IRS notice extends full deduction of bundled fiduciary fees pending IRS regulations

Notice 2010-32 (April 1, 2010) granted fiduciaries yet another reprieve from dealing with the ramifications of the U.S. Supreme Court's decision in Knight v. Comm'r, 552 U.S. 181 (2008), by providing that bundled fiduciary fees are still fully deductible on 2009 returns. In Knight, the court held that fees paid to an investment advisor by a trust or estate are generally subject to the 2 percent floor for miscellaneous itemized deductions under IRC Section 67(a). As a result of this ruling, fiduciaries will have to determine how to deal with bundled fees that combine costs that are subject to the 2 percent floor and the expenses specific to trust administration that are fully deductible. The IRS will be issuing regulations under Section 1.67-4 addressing these bundled fee arrangements. However, as these regulations haven't yet been issued, Notice 2010-32 extended the guidance provided for previous tax years in providing that taxpayers aren't required to determine the portion of a bundled fiduciary fee that is subject to the 2 percent floor for tax year 2009. Rather, such fees are fully deductible.