Section of Taxation Publications
  VOL. 54
NO. 3
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Fees Paid by Trustees for Investment Strategy Advice and Management Services are Not Deductible Under Section 67(e)(1): Mellon Bank, N.A. v. United States

Danielle M. Hohos


In Mellon Bank, N.A. v. United States, the Court of Federal Claims held that fees paid by trustees to investment advisors, accountants, tax preparation services, and management services were subject to the two-percent floor in section 67(a) if those same costs would have been incurred had the funds not been held in trust. The court reasoned that, if Congress had intended to exempt trusts completely from the two-percent floor in section 67(a), it could have done so in the language of the Code. Instead, the plain language of section 67(e)(1) requires that the fees paid by the trustees be unique to the administration of the trust.

Part I of this Note provides background on section 67 and summarizes the facts of Mellon Bank. Part II discusses the decision of the Court of Federal Claims. Part III analyzes the court’s decision and discusses its ramifications. Part IV concludes that, although the court correctly decided Mellon Bank, further clarification is needed regarding which costs are unique to the administration of a trust. The Service, rather than the courts, is best suited to clarify the issue.



Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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