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A Form 1041, U.S. Income Tax Return for Estates and Trusts,
for the 2000 year was timely filed on behalf of the trust.
Thereon the trust reported total income of $624,816. The Form
1041 also reflected, among other things, a deduction of $22,241
on line 15a for “Other deductions not subject to the 2% floor”,
further described on an attached statement as “INVESTMENT
MANAGEMENT FEES”. No deduction was claimed on line 15b for
“Allowable miscellaneous itemized deductions subject to the 2%
floor”.
On December 5, 2003, respondent issued to the trust a
statutory notice of deficiency determining the aforementioned
$4,448 deficiency for the taxable year 2000. Respondent
disallowed full deduction of the $22,241 in investment fees and
instead permitted a deduction of $9,780, the amount by which
$22,241 exceeded 2 percent of adjusted gross income of $623,050
(i.e., $12,461).
The trustee filed the underlying petition in this case
disputing respondent’s determination on grounds that the
investment advisory fees should not be subject to the 2-percent
limitation. During trial preparations, the parties became aware
that the notice of deficiency contained an error in its
computation of adjusted gross income. The parties have now
stipulated that the correct adjusted gross income figure is
$613,263, for a corresponding deduction under respondent’s
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