Jul 1, 2008 12:00 PM, By Kevin Matz

By: By Kevin Matz

With the Internal Revenue Service on the verge of issuing final regulations, more than 17 professional organizations and legal commentators have taken a stand in the ongoing debate on the extent to which trusts and estates can deduct certain costs without regard to the 2 percent of adjusted gross income floor, and whether fiduciary fees and commissions must be unbundled. Stakes are high: For banks and trustees, it could mean reorganizing how they do business. For trusts, estates and their beneficiaries, it could mean a substantial tax hit.

The American College of Trust and Estate Counsel (ACTEC), the American Bankers Association, the American Bar Association Section of Real Property, Trust and Estate Law and various other prominent organizations and figures in the trust and estates field responded to an IRS request and submitted comments on proposed Treasury Regulations Section 1.67-4 and Notice 2008-32. Specifically, the proposed regs address the exception to the 2 percent of adjusted gross income floor (the 2 percent floor) on miscellaneous itemized deductions (MIDs) for certain costs that are paid or incurred in connection with the administration of an estate or a trust, and which would not have been incurred if the property were not held in such estate or trust. Depending upon the facts and circumstances of a particular trust or estate, the costs could be significant because expenses subject to the 2 percent floor may be effectively nondeductible as a result of the alternative minimum tax.

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