Press Room: Tax Release

July 30, 2018

IRS Clarifies Effect of Suspended Miscellaneous Itemized Deductions on Trusts and Estates

IRS has announced in Notice 2018-61 (the Notice) that it will issue regulations to clarify that trusts and estates will be allowed to take deductions for expenses that are unique to trust and estate administration, as provided under Sec. 67(e) of the Internal Revenue Code. The pending regulations will clarify the effect of new Sec. 67(g) regarding the deductibility of certain expenses described in Sec. 67(b) and (e) and Reg. 1.67-4 that are incurred by estates and non-grantor trusts. These expenses may include tax preparation fees, appraisal fees and certain fiduciary expenses.

Pending Regulations

The Tax Cuts and Jobs Act (TCJA) suspended the deduction of certain miscellaneous itemized deductions through 2025. Some practitioners had expressed concerns that Sec. 67(g)’s disallowance of itemized deductions would include expenses of trust and estate administration, while others took the position that Sec. 67(g) did not affect the deductibility of these expenses.

The Notice states that IRS and Treasury don't believe that the elimination of estate and trust administrative cost deductions is a correct reading of new Sec. 67(g) and that regulations will be issued to clarify the deductibility of certain expenses under Secs. 67(b) and (e) and Reg. 1.67-4. Comments are also requested on how IRS should rule on the trust or estate beneficiary's ability to deduct excess deductions and unused attributes when an estate or trust terminates under Sec. 642(h)(2).

The Notice is effective July 13, 2018, but estates and non-grantor trusts may rely on the Notice for tax years beginning after December 31, 2017.

The Takeaway

The Notice provides needed and clear guidance regarding changes under the TCJA with respect to the deductibility of certain trust and estate administration expenses. While related issues remain outstanding, the proposed regulations will also address the treatment of Sec. 67(e) expenses upon estate or trust termination. Taxpayers may rely on the Notice for tax years beginning after December 31, 2017. Please contact your Andersen Tax advisor if you have any questions.