IRS Notice: 2018-61 – Effect of IRC Section 67(g)
Costs Paid or Incurred in the Administration of an Estate or Trust
Section 67(g) was enacted as part of the Tax Cuts and Jobs Act, December 22, 2017. That section disallows the itemized miscellaneous deductions exceeding the 2% floor for tax years beginning after December 31, 2017 and ending January 1, 2026.
Generally, the Adjusted Gross Income (AGI) of a trust or estate is calculated the same way for those entities as it is for an individual (Section 67(e)), which would support the disallowance of the above deductions. However, exceptions are provided under Section 67(e)(1) for costs paid or incurred for transactions that would not have been otherwise incurred if the property was not held in a trust or estate (see Regulations Section 1.67-4). Additionally, deductions allowed under Sections 642(b), 651 and 661 shall continue to be allowed for trusts and estates in determining AGI (Section 67(e)(2)).
The Notice highlights that it is the “type of service” that is determinative for whether it is an allowed deduction solely as a result of the trust or estate framework or would continue to be incurred regardless of the entity (includible – IRS Form 1041, 706, decedent’s final 1040 versus Form 706, property maintenance costs – not includable (see Regs. Section 1.67-4(b) and (c))).
The Notice goes on to say that “nothing in Section 67(g) affects the ability of the estate or trust to take a deduction listed under Section 67(b),” and that the Treasury and IRS will be issuing regulations to that effect.
Lastly the Notice asks for comments on Section 67(g) as it relates to a beneficiary’s ability to deduct Section 67(e) expenses upon the termination of a trust or estate pursuant to Section 642(h).
The full text of the Notice can be found at: https://www.irs.gov/pub/irs-drop/n-18-61.pdf