Tax Legal Services · Primary-source case analysis

Knight v. Commissioner: Trust Investment Fees Were Subject to the Two-Percent Floor

By Aneeta Mishra and Timothy Chan

Published April 26, 2026

Knight interprets the exception for trust costs that would not have been incurred if property were not held in trust.

A trustee deducted advisory fees in full

The trustee hired an investment adviser and claimed the full fee as an administrative expense unique to the trust. The IRS applied the two-percent floor then governing miscellaneous itemized deductions.

The test asks whether individuals commonly incur the cost

Section 67(e) excepted costs that would not have been incurred if the property were not held in trust. The Court read this to exclude expenses commonly or customarily incurred by individuals holding similar property.

Investment advice was commonly obtained outside trusts

Individuals routinely hire investment advisers, so the expense was not made trust-specific merely because fiduciary duties influenced the trustee’s decision. Unusual incremental fiduciary costs could require a different allocation.

Disposition

The Court unanimously affirmed application of the two-percent floor. Later statutory suspensions and amendments must be checked for the tax year at issue.

Key takeaways

• Identify the tax year and current treatment of miscellaneous deductions.
• Ask whether individuals commonly incur the same cost.
• Separate any incremental trust-specific portion.
• Document fiduciary needs and fee allocation.