Pamela Champine (New York Law School) has posted Taxing Middle Class Trust(s), 7 Fla. Tax Rev. ___ (2006), on SSRN.  Here is the abstract:

Middle class taxpayers bear a disproportionately high tax burden, in part, because of a systemic failure to understand factual circumstances of these individuals and the impact of particular Code provisions on them. A prime example is the applicability of IRC Section 67’s limitation on miscellaneous itemized deductions (known as “the two percent floor”) to trusts. The Code expressly states the legislative intent to treat trust beneficiaries and outright owners equally by subjecting trust expenses to the two percent floor except to the extent that the expenses “would not have been incurred had the property not been held in trust.” This statutory text does not, however, expressly acknowledge the use of trusts by middle class taxpayers. Judicial interpretations disregard middle class trusts as well, because all of the litigated cases involve large trusts. The Federal Circuit Courts have divided on the question of how to achieve equity in the applicability of the two percent floor to trusts, yet they uniformly disregard the inequity that their interpretations produce for modest trusts of middle class taxpayers. This article offers an interpretation of Section 67’s exemption for trust expenses that accounts for the use of trusts by middle class taxpayers as well as wealthy individuals, which achieves the equity that Congress envisioned and the Code requires.