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individual may make a voluntary and personal choice to seek
investment advice, fiduciary duties render such professional
advice a necessary and “involuntary” component of trust
administration.
In contrast, it is respondent’s position that the section
67(e)(1) exception does not apply to the expenses at issue.
Respondent does not dispute the expenditures were made in
connection with the administration of the trust. However,
respondent alleges that because investment advisory fees are
commonly incurred by individual investors outside the context of
trust administration, the fees fail to satisfy the requirement
that they would not have been incurred if the assets were not
held in trust. It is also respondent’s view that neither State
law nor the governing trust instrument imposed a legal obligation
on the fiduciary to obtain professional investment management
services.
III. Analysis
The deductibility of investment advisory fees by a trust
under section 67(e)(1) is not a matter of first impression. This
Court and three Courts of Appeals have ruled on the question.
Scott v. United States, 328 F.3d 132 (4th Cir. 2003); Mellon
Bank, N.A. v. United States, 265 F.3d 1275 (Fed. Cir. 2001);
O’Neill v. Commissioner, 994 F.2d 302 (6th Cir. 1993), revg. 98
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