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New IRS Guidance Clarifies Trust and Estate Changes

July 19, 2018
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The Department of the Treasury and the Internal Revenue Service (IRS) recently issued a notice providing clarification as to what effect the newly enacted section 67(g) of the Internal Revenue Code (IRC) will have on trusts and estates

The 2017 Tax Cuts and Jobs Act (the "Act") disallows all miscellaneous itemized deductions for the taxable years beginning after December 31, 2017 and before January 1, 2026. Since estates and non-grantor trusts compute taxable income in almost the same manner as individuals, it was unclear with the passage of the new Act whether the IRS would still allow certain deductions for costs incurred with the administration of estates and trusts.

In Notice 2018-61, the Treasury Department and the IRS have announced that they will provide guidance regarding the deductions allowed under IRC Section 67(g) and its applicability to estates and non-grantor trusts. More specifically, the to-be-proposed regulations would affirm for estates and non-grantor trusts that they may continue to deduct Section 67(e) expenses, which are specifically incurred with the administration of trust and estates, unaffected by 67(g).

Furthermore, the Notice states that the IRS is soliciting comments concerning how Section 67(g) may affect 642(h), which deals with a beneficiary’s ability to claim excess deductions upon the termination of a trust or estate.