Part III. Administrative, Procedural, and Miscellaneous

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

Notice 2011–37

PURPOSE

This notice extends to taxable years that begin before the date that final regulations under § 1.67–4 of the Income Tax Regulations are published in the Federal Regis- ter, the interim guidance provided in Notice 2010–32, 2010–16 I.R.B. 594, 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 Notice 2010–32 is modified and superseded.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. 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 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 IRS and Treasury Department intend that final regulations will not be applicable to taxable years that begin before the date that final regulations are published in the Federal Register .

Notice 2008–32 provided interim guidance that specifically addressed the treat

ment 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, and Notice 2010–32 extended the interim guidance provided in Notice 2008–116 and Notice 2008–32 to taxable years beginning before January 1, 2010.

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 the date that final regulations are published in the Federal Register . 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 2010–32 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.

Truncating Social Security Numbers on Paper Payee Statements

Notice 2011–38