Content area

Abstract

The deductibility of expenditures for investment advisory services is allowed only to the extent such fees exceed 2% of adjusted gross income. The ruling in Indopco establishes a reasonable basis for capitalizing investment advisory fees if the taxpayer can meet either of 2 tests. The taxpayer must demonstrate that a separate and distinct asset was acquired by reason of the expenditure. The intent of the taxpayer in making the capitalized expenditure should be to produce income over a period longer than a year. The remaining question is whether the taxpayer has adopted an accounting method on prior returns and must apply for permission to change that accounting method. If Section 266 applies to such fees, the elective nature of that statute probably trumps any questions regarding the adoption of an accounting method. If the fees are sufficiently large, the taxpayer may form a partnership with other family members to hold investments. As a new taxpayer, the partnership may adopt the appropriate accounting method.

Details

Title
Capitalization of investment advisory fees: Can the case be made?
Author
William A Duncan, John O Everett; Spindle, Roxanne M
Pages
47-51
Publication year
2000
Publication date
Sep 2000
Publisher
CCH INCORPORATED
ISSN
00400181
Source type
Trade Journal
Language of publication
English
ProQuest document ID
206065249
Copyright
Copyright Commerce Clearing House, Inc. Sep 2000