Volume IV, Issue II (April 2006) - Columbus School of Law

would not be able to deduct the fee if his or her total miscellaneous deductionsequaled less than one percent of adjusted gross income. Taxpayers withmiscellaneous deductions might not object to the burden of keeping accuraterecords if the result were to reduce their tax liabilities. 490The Committee’s contemplation of situations where taxpayers would be deprived of a deductiondemonstrates a clear recognition that the imposition of a floor would be unfair to some taxpayers.The Committee also considered the implications of classifying miscellaneous deductionsas “above-the-line” or “below-the-line” deductions:First, there may be a policy decision that all taxpayers should be allowed tobenefit from the deduction. However, it is not necessarily clear why this concernshould be more applicable to miscellaneous deductions than, for example, todeductions for home mortgage or consumer interest, casualty losses, or medicalexpenses. Further, nonitemizers benefit from the allowance of deductions thatcan be claimed only by itemizers, since the zero bracket amount is intended toreflect such expenditures typically made by nonitemizers.Second, as a matter of tax policy there is a general distinction between above-thelineand itemized deductions, although many deductions may be allocatedinconsistently with this theoretical distinction. In principle, a deduction isallowed above-the-line if, as an expense of generating income, it must besubtracted from gross income in order to arrive at an accurate measurement ofthe taxpayer’s true net income. By contrast, itemized deductions generally areconsidered to reflect personal expenditures which, although not properlydeductible in measuring economic income, are allowed for reasons of socialpolicy…However, in view of the fact that the Administration proposal generally keepsother itemized deductions below-the-line, the proposal to move miscellaneousdeductions above-the-line may instead be based on the view that they areproperly allowable in calculating economic income—a view theoreticallyinconsistent with the decision to allow them only to the extent in excess of afloor, although arguably supportable for simplification purposes. 491Applying the principles that the Committee set forth for classifying deductions as “above-theline”or “below-the-line” it would seem that investment advisory fees are more like expenses ofgenerating income as opposed to personal expenditures. Once again, however, it seems as thoughsimplicity trumped that rationale.Judging by the legislative debates and the differing proposals from the House ofRepresentatives, Senate and President Reagan, it is apparent that the legislative focus wasprincipally centered around simplifying the tax code by means of reducing the number ofitemizing taxpayers. Unfortunately, Congress did not indicate any concern over thefiduciary duties of investment professionals and the fact that the 1986 Code would favorthe use of brokers rather than investment advisors. The next section will examine the490 Id.491 Id. at 207.82