Deducting Family Office Investment Expenses After Lender

Insights: Publications Deducting Family Office Investment Expenses After Lender

ACTEC Law Journal, Volume 45, Volume 3

June 1, 2020

Written by Robert L. Daily

In 2017, two tax developments sent shockwaves throughout the family office community. First, the Tax Court, in Lender Management v. Commissioner, held that a multi-generational family office was a trade or business and could take above-the-line deductions for operating expenses it incurred. Second, Congress passed the 2017 Tax Act (commonly known as “TCJA”2) which disallowed operating expenses for taxpayers engaged in a profit-seeking activity like investing. Before the TCJA, taxpayers had an incentive to argue they were engaged in a trade or business: expenses would be fully deductible if they were and limited if they were only engaged in a profit-seeking activity. But the combination of Lender and the 2017 Tax Act made that incentive even greater for family offices.