The IRS has extended the interim guidance provided in Notice 2008-32 to tax years beginning before January 1, 2010 in Notice 2010-32. Notice 2008-32 provided that taxpayers would not be required to determine the portion of a “Bundled Fiduciary Fee” that is subject to the 2-percent floor under I.R.C. section 67 for any taxable year beginning before January 1, 2008 (Notice 2008-116 extended the period to tax years beginning before January 1, 2009).
The IRS and the Treasury Department expect to issue regulations under I.R.C. section 67 consistent with the Supreme Court’s holding in Michael J. Knight, Trustee of William L. Rudkin Testamentary Trust v. Commissioner, 552 U.S. 181, (2008). In Knight, the Court held that costs paid to an investment advisor by a nongrantor trust or estate generally are subject to the 2-percent floor for miscellaneous itemized deductions under I.R.C. section 67(a). The regulations will also address the issue raised when a nongrantor trust or estate pays a Bundled Fiduciary Fee for costs incurred in-house by a fiduciary. However, the regulations will not be issued in time to be applicable to the 2009 taxable year.
Therefore, under Notice 2010-32, taxpayers will not be required to determine the portion of a Bundled Fiduciary Fee that is subject to the 2-percent floor under I.R.C. section 67(a) for any taxable year beginning before January 1, 2010. Rather, for such taxable years, taxpayers may deduct the full amount of the Bundled Fiduciary Fee without regard to the 2-percent floor. However, identifiable expenses paid which are subject to the 2-percent floor must be treated seperately from the Bundled Fiduciary Fee.