n-10-32.pdf

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# Part III - Administrative, Procedural, and Miscellaneous

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

Notice 2010-32

This notice extends to taxable years that begin before January 1, 2010, the interim
guidance provided in Notice 2008-116, 2008-52 I.R.B. 1372, and 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 a trustee or executor ("Bundled
Fiduciary Fee") and are incurred by a trust other than a grantor trust (nongrantor trust)
or an estate. Notice 2008-116 is modified and superseded.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. 181, 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

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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 2009
taxable year.

Notice 2008-32 provided interim guidance that specifically addresses the
treatment of a Bundled Fiduciary Fee. In short, 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 § 67 for any taxable year beginning before January
1, 2008. Notice 2008-116 extended the interim guidance provided in Notice 2008-32 to
any taxable years beginning before January 1, 2009.

## 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, 2010. 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 2008-116 is modified and superseded.

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## CONTACT INFORMATION

The principal authors of this notice are Jennifer N. Keeney and Bradford R.
Poston 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).

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