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Supreme Court gives IRS win in trust case

The U.S. Supreme Court ruled today that deductions for trusts and estates are subject to the same 2 percent of adjusted gross income limits that individual taxpayers face.

The case, Knight v. IRS, revolved around a relatively tiny tax amount: $4,448.

Yeah, I do think almost $4,500 is a tidy sum. But I use the word relative because that amount was in connection with a tax return filed by a trust established for the heirs of the Pepperidge Farm company.

Milano_cookies When you're talking about Pepperidge Farm (yes, I said "fahhrm" in my head as I typed that), you're not just talking yummy Milano cookie crumbs.

The trust was set up with money from the sale of Pepperidge Farm to Campbell Soup and in 2000, the year of the disputed return, it had $2.9 million in assets and $625,000 in income.

It reported expenditures of $22,241 on investment advice and deducted the full amount on its tax return.

Uh-uh, said the IRS. Expenses can be deducted only to the extent they exceeded the 2 percent floor. The difference was the disputed $4,448.

The Supreme Court, in a unanimous decision, said Uncle Sam is right. That's why you're seeing a lot of mopey trust managers and beneficiaries today.

At least in this case, we regular taxpayers can take solace in the fact that while the IRS won, it was folks much, much wealthier than us who came out on the losing end of the tax battle.

This Forbes' story has some good background on the suit, as does this bulletin from Cornell University Law School. This AP story has a bit more on the Court's decision.


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Kellsboro Jack

Interesting story and I won't worry too much about the Rudkin family starving ;>

Margaret Rudkin's (who founded the company with her husband William) heirs married into another who had far deeper pocksts: the Bostwick family. Jabez Bostwick was a key Standard Oil player such that his wife - Helen C. Bostwick - died in 1920 with an estate valued then at $29 million.

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