Nonacquiescence in O'Neill.Although the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. did not appeal the Sixth Circuit's decision in William J. O'Neil, Jr. Irrevocable Trust Irrevocable Trust A trust that, once its setup, cannot be changed at all. Notes: This is to prevent fraudulent activities. See also: Exemption Trust, Trust, Unit Trust Irrevocable trust A trust that is unable to be amended, altered, or revoked. , 994 F2d 302 (1993), rev'g 98 TC 227 (1992), it announced that it will not follow that decision except for cases arising in the Sixth Circuit. (See nonacquiescence in IRB IRB See: Industrial Revenue Bond 1994-38, 4.) Trusts and estates, like individuals, may generally deduct miscellaneous itemized deductions Itemized Deduction A deduction from a taxpayer's taxable adjusted gross income that is made up of deductions for money spent on certain goods and services throughout the year. only to the extent that these deductions exceed 2% of adjusted gross income - except that costs unique to the administration of a trust or estate are fully deductible under Sec. 67(e)(1). For individuals, the 2% floor applies to investment advice. But the inexperienced trustees of the William J. O'Neill, Jr. Trust believed they needed such advice and deducted the full 1987 fees of $15,374. The Service asserted that the 2% floor applied and the Tax Court agreed. But the Court of Appeals reversed, stating that the fees were fully deductible; they stemmed from fiduciary duties Noun 1. fiduciary duty - the legal duty of a fiduciary to act in the best interests of the beneficiary legal duty - acts which the law requires be done or forborne and would not have been incurred if the assets had not been held in trust. (See Tax Trends, "Trust May Deduct Investment Advisory Fees in Full; 6th Cir. Reverses TC," TTA TTA Telecommunications Technology Association (Korea) TTA Teacher Training Agency (UK) TTA Triangle Transit Authority (Raleigh/Chapel Hill/Durham, North Carolina, USA) , Aug. 1993, at 535.) The IRS's position is patently wrong, particularly in view of the American Law Institute's recent change to the "prudent investor" rule contained in the Restatement of the Law Restatement of the Law n. a series of detailed statements of the basic law in the United States on a variety of subjects written and updated by well-known legal scholars under the auspices of the American Law Institute since the 1930s. of Trusts, which encourages inexperienced trustees to hire investment advisers. However, there should be no question that many other types of trust and estate administration expenses are fully deductible. It is interesting to note that in his Tax Court brief in O'Neill, the IRS Chief Counsel conceded that trustees' commissions, legal fees in a construction proceeding, the cost of a judicial accounting and fees for preparing fiduciary income tax returns are all examples of trustees' expenses not subject to the 2% floor. Investment custody fees also should be fully deductible. Such costs are normally incurred because of the fiduciary's responsibility and duty under the Restatement of the Law of Trusts to "protect and preserve" the trust (or estate) property. |
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