Courts have applied the provision differently, however. In William O’Neill Jr. Irrevocable Trust v. Commissioner, 71 AFTR 2d 93-2052 (1993), the Sixth Circuit Court of Appeals allowed the exemption for investment advisory fees a trustee paid to meet fiduciary requirements under state law. More recently, however, the Fourth Circuit in Rudkin v. Commissioner , 98 AFTR 2d 2006-7368 (2006), declined to exempt similar fees, reasoning they were not of a type peculiar to trusts (see “ Tax Matters,” Jan. 06, p. 75). The Supreme Court may also address the discrepancy; it has granted certiorari in Rudkin.
Under Proposed Amendment 1.67-4, costs unique to the estate or trust are exempt from the 2% floor. Examples include fiduciary accountings and returns for income and estate tax, required judicial filings and distributions to beneficiaries. Expenses that would not be considered unique and thus are subject to the 2% floor include custody or management of property, gift tax returns, defense of claims by creditors of the decedent or grantor, and management of property not used in a trade or business.
Comments on REG-128224-06 may be made by Oct. 25 via www.regulations.gov.