Final IRS Sect. 67(e) Regs for Estate and Trust Taxpayers: Applying the Required 2% Deduction Floor

Navigating Fully Deductible vs. Fees Subject to the Floor, Rules for Conditionally Deductible Fees, Unbundling Fee Methodologies

Recording of a 110-minute CPE/CLE webinar with Q&A

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Conducted on Wednesday, October 15, 2014

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Course Materials

This course will prepare tax advisors and counsel to understand when a trust or estate’s fees are deductible or subject to the 2% floor for itemized deductions. New regulations under Sect. 67(e) provide rules, which are not intuitive, governing whether various expenses paid by estates and trusts are fully deductible, or subject to the 2% floor. The panel will provide guidance to unraveling the confusion over unbundling fees, and the treatment of investment advisory fees.

Description

In May 2014, final Sect. 67(e) regulations from the Internal Revenue Service attempted to put an end to years of confusion surrounding which costs incurred by estates and trusts were subject to the 2% itemized deduction floor. Tax accounting advisors and tax lawyers must thoroughly understand the details of the new regs in order to maximize deductions for their clients’ fiduciary fees.

The rules establish a bright-line standard for certain categories of expenses. For instance, investment advisory fees and most tax preparation fees are subject to the 2% floor. Bond premiums, probate fees and appraisal costs are excluded. However, the rules impose the 2% floor on fiduciary expenses “commonly or customarily incurred” by individuals, which can be a difficult determination.

The regulations also leave much open to interpretation when it comes to bundled fees. Tax professionals must unbundle the fees and allocate them according to which are exempt from the 2% floor, and questions remain as to what methodology estate and trust advisors should use to allocate the unbundled fees.

Listen as our panel of federal estate and trust taxation specialists cuts through the complexities of the Sect. 67(e) regulations to bottom line which estate and trust fees are subject to the 2% itemized deduction floor. The panel will offer concrete methodologies for calculating deductions according to estate and trust tax laws.

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Outline

  1. Background: Court cases and regulations prior to finalized Sect. 67(e)
    1. Lack of clarity in original Sect. 67(e)
      1. 2% floor for below the line deductions
      2. Confusion over investment advisory fees
      3. Split between Sixth Circuit and Fourth/Federal Circuit rulings
      4. Knight v. Commissioner U.S. Supreme Court Decision
      5. Temporary guidance leading up to final regs
  2. Details of final regulations
    1. Interpreting the “commonly or customarily incurred” clause
    2. Specific categories of fees
      1. Appraisal fees
      2. Investment advisory fees
      3. Tax preparation fees
      4. Ownership costs
    3. Bundled fees
      1. Unbundling fees for mixed services
      2. Absence of recommended methodology
  3. Practical examples and recommended strategies
    1. Estate and trust planning considerations
    2. Impact on filing returns
    3. Alternative Minimum Tax (AMT) issues

Benefits

The panel will explore solutions to problems stemming from the Sect. 67(e) regs, including:

  • Determining which fees are subject to the 2% itemized deduction floor, and which fees are fully deductible.
  • Applying the new rules to investment advisory fees and other fees whose susceptibility to the 2% floor is conditional.
  • Exploring methodologies for unbundling bundled fees that aren’t clarified by the regulations.
  • Anticipating potential Alternative Minimum Tax implications of the 2% floor.
  • Applying the new rules to not only trusts and estates, but family office structuring and management considerations.

Faculty

Tina D. Milligan
Tina D. Milligan
Managing Director
HarrismyCFO

Ms. Milligan is a Managing Director at CTC | myCFO, an integrated wealth management provider serving ultra-affluent...  |  Read More

Domingo P. Such, III
Domingo P. Such, III
Partner
Perkins Coie

Mr. Such focuses his practice on financial, estate and tax planning matters as they relate to ownership in various...  |  Read More

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