n-08-116.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Extension of Interim Guidance on Section 67 Limitations on Estates or Trusts

Notice 2008-116

PURPOSE
This notice extends to taxable years that begin before January 1, 2009, the
interim guidance provided in Notice 2008-32, 2008-11 I.R.B. 593, on the treatment
under § 67 of the Internal Revenue Code of investment advisory costs and other costs
subject to the 2-percent floor under § 67(a) that are integrated as part of one
commission or fee paid to the trustee or executor (“Bundled Fiduciary Fee”) and are
incurred by a trust other than a grantor trust (nongrantor trust) or an estate. Notice
2008-32 is modified and superseded.
BACKGROUND
On January 16, 2008, the Supreme Court of the United States issued its decision
in Michael J. Knight, Trustee of William L. Rudkin Testamentary Trust v. Commissioner
,
552 U.S. ___, 128 S. Ct. 782 (2008), holding 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 § 67(a). The IRS and the Treasury
Department expect to issue regulations under § 1.67-4 of the Income Tax Regulations
consistent with the Supreme Court’s holding in Knight
. The regulations also will
address the issue raised when a nongrantor trust or estate pays a Bundled Fiduciary
Fee for costs incurred in-house by the fiduciary, some of which are subject to the 2-
percent floor and some of which are fully deductible without regard to the 2-percent
floor. The regulations, however, will not be issued in time to be applicable to the 2008
taxable year.
Notice 2008-32 provides interim guidance that specifically addresses the
treatment of a Bundled Fiduciary Fee. In short, Notice 2008-32 provides that taxpayers
will not be required to determine the portion of a Bundled Fiduciary Fee that is subject to
the 2-percent floor under § 67 for any taxable year beginning before January 1, 2008.
EXTENSION OF INTERIM GUIDANCE
Taxpayers will not be required to determine the portion of a Bundled Fiduciary
Fee that is subject to the 2-percent floor under § 67 for any taxable year beginning
before January 1, 2009. Instead, for each such taxable year, taxpayers may deduct the
full amount of the Bundled Fiduciary Fee without regard to the 2-percent floor.
Payments by the fiduciary to third parties for expenses subject to the 2-percent floor are
readily identifiable and must be treated separately from the otherwise Bundled Fiduciary
Fee.
EFFECT ON OTHER DOCUMENTS
Notice 2008-32 is modified and superseded.

CONTACT INFORMATION
The principal author of this notice is Jennifer N. Keeney of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Jennifer N. Keeney at (202) 622-3060 (not a toll-free call).