William L. Rudkin Testamentary Trust U/W/O Henry A. Rudkin, Michael J. Knight, Trustee - Page 11

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          courts explicitly rejected the taxpayers’ arguments premised on             
          fiduciary duties as running afoul of this principle of                      
          construction.  Scott v. United States, supra at 140; Mellon Bank,           
          N.A. v. United States, supra at 1280-1281.  In the words of the             
          Court of Appeals for the Fourth Circuit:                                    
               we would, by holding that a trust’s investment-advice                  
               fees were fully deductible, render meaningless the                     
               second requirement of � 67(e)(1).  All trust-related                   
               administrative expenses could be attributed to a                       
               trustee’s fiduciary duties, and the broad reading of                   
               � 67(e)(1) urged by the taxpayers would treat as fully                 
               deductible any costs associated with a trust.  But the                 
               second clause of � 67(e)(1) specifically limits the                    
               applicability of � 67(e) to certain types of trust-                    
               related administrative expenses.  To give effect to                    
               this limitation, we must hold that the investment-                     
               advice fees incurred by the Trust do not qualify for                   
               the exception created by � 67(e).  Rather, they are                    
               subject to the 2% floor established by � 67(a).  [Scott                
               v. United States, supra at 140.]                                       
               The Court of Appeals for the Fourth Circuit characterized              
          the contrary analysis in this regard of the Court of Appeals for            
          the Sixth Circuit in O’Neill v. Commissioner, 994 F.2d at 304, as           
          containing “a fatal flaw”.  Scott v. United States, supra at 140.           
          The Court of Appeals for the Federal Circuit similarly branded              
          the taxpayer’s attempts to bolster its interpretation through               
          legislative history as “unpersuasive.”  Mellon Bank, N.A. v.                
          United States, supra at 1281.  To wit, the Court of Appeals for             
          the Federal Circuit, tracing the genesis of section 67(e), noted            
          that to premise full deduction of all trust expenses on fiduciary           
          duties would run counter to                                                 






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Last modified: May 25, 2011