Kaspick Seeks Exclusion of Fees for Pooled Income Funds From 2 Percent Floor

Kaspick Seeks Exclusion of Fees for Pooled Income Funds From 2 Percent Floor

News story posted in Comments on 9 June 2008| comments
audience: National Publication | last updated: 18 May 2011


Writing on behalf of Kaspick & Co., Heidi Strassburger has asked that proposed regulations under Sec. 1.67-4 pertaining to the rules for subjecting investment advisory fees of trusts to the 2% floor exclude investment advisory fees for Pooled Income Funds by suggesting that doing otherwise would defeat legislative intent.

Full Text:

From: Heidi Strassburger [hstrassburger@kaspick.com]

Sent: Monday, May 26, 2008 6:26 PM

To: Notice Comments

Subject: Notice 2008-32

Dear Ms. Keeney:

I am writing to comment on the proposed regulations of Treas. Regs. Sec. 1.67-4 pertaining to the rules for subjecting investment advisory fees of trusts to the 2% floor. Specifically, I am writing to request that the regulations specifically exclude investment advisory fees for Pooled Income Funds from the 2% floor of Section 67(e).

Legislative Intent Not Met by Subjecting Pooled Income Funds to the 2% Floor

In applying the 2% floor for itemized deductions to estates and trusts, Congress intended to prevent individuals from circumventing the floor by holding property in trust. See Mellon Bank, N.A. v. U.S., 86 AFTR 2d 2000-5321, Sec. IV for a full discussion of the legislative history and Congressional intent. A taxable trust filing a Form 1041 which pays out net income from the trust passes out the benefit of the deductions to the income beneficiary through completing Schedule B and limiting the income distribution deduction to distributable net income. Congress did not want individuals to benefit to a greater extent from deductions allocated to them through trusts than if they held the property outside of a trust. Because individuals were limited to certain miscellaneous itemized deductions, those limitations were applied equally to trusts.

Pooled Income Funds pass out income to non-charitable beneficiaries and receive a deduction for long-term capital gains permanently set aside for charity. To the extent Pooled Income Funds earn short-term capital gains, they are subject to tax which is paid with the filing of Form 1041. In accordance with the instructions to Form 1041 and consistent with Treas. Regs. 1.642(c)-5, the non-charitable beneficiaries are taxed on the full amount of the payments they receive. It is not necessary to complete Schedule B to determine the Pooled Income Funds distribution deduction. By taxing the income beneficiaries to the full extent of the income they receive, they never receive the benefit of deductions that otherwise might be limited to the 2% floor. To the extent the trust has these deductions, they serve to reduce the taxable income of the Pooled Income Fund that ultimately benefits charity.

Because the individuals receiving income payments from a Pooled Income Fund do not receive the deduction for investment advisory fees paid, restricting the deduction to the 2% floor does not accomplish the legislative intent of the limitation. Donors to Pooled Income Funds do not contribute to the Pooled Income Fund to circumvent the 2% limitation that applies to them individually. Therefore, Pooled Income Funds should be exempt from any 2% limitation that would apply to investment advisory fees.

Thank you very much for taking the time to consider these comments.

Please feel free to contact me with any questions you might have.


                Heidi Strassburger
                Director of Tax, Legal &
                Regulatory Affairs
                Kaspick & Company, LLC
                A member of the TIAA-CREF family
                of companies
                203 Redwood Shores Parkway,
                Suite 300
                Redwood Shores, CA 94065-6121
                phone: (650) 585-4192
                fax: (650) 595-1400

Add comment

Login or register to post comments


Group details



This group offers an RSS feed.
7520 Rates:  July 3.4%  June 3.4%  May 3.2%

Already a member?

Learn, Share, Gain Insight, Connect, Advance

Join Today For Free!

Join the PGDC community and…

  • Learn through thousands of pages of content, newsletters and forums
  • Share by commenting on and rating content, answering questions in the forums, and writing
  • Gain insight into other disciplines in the field
  • Connect – Interact – Grow
  • Opt-in to Include your profile in our searchable national directory. By default, your identity is protected

…Market yourself to a growing industry