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The U.S. Supreme Court on Jan. 15 and Jan. 16 issued the following opinions: • The justices unanimously held that investment advice fees incurred by a trust may only be deducted on the trust’s federal tax return to the extent they exceed 2% of the trust’s adjusted gross income. Knight v. Commissioner of Internal Revenue, No. 06-1286. The court affirmed the decision of the 2d U.S. Circuit Court of Appeals, rejecting the trust’s argument that it should be allowed to fully deduct the investment advisory fees. Writing on behalf of the court, Justice John G. Roberts Jr. said trusts ordinarily may not deduct the full cost of investment advice on their income tax returns. Those expenses are deductible only when they exceed 2% of adjusted gross income, the same limits faced by individual filers. The case arose over a relatively small tax dispute, $4,448, involving the income tax return filed by the trust established by the will of Henry A. Rudkin, former chairman and founder of the Pepperidge Farm Inc. The trust was funded with the proceeds of the sale of Pepperidge Farm to Campbell Soup Co. The trust had $2.9 million in assets and $625,000 in income in 2000, the year of the disputed return. The trust reported that it spent $22,241 on investment advice and deducted all of it on its tax return. The Internal Revenue Service said the expenses could be deducted only to the extent they exceeded the 2% floor. The discrepancy was $4,448. The trust sued in U.S. Tax Court, which ruled for the government. The 2d Circuit affirmed. • The justices unanimously upheld New York’s procedure for selecting state trial judges. New York Board of Elections v. Torres, No. 06-766. In New York, judicial candidates are selected through nominations at political conventions rather than through primaries. Once nominated, those candidates run on the general election ballot. In practice, they frequently have no opposition. Margarita Lopez Torres became the lead plaintiff in the suit after Democratic leaders in heavily Democratic Brooklyn blocked her from getting the party’s nomination for a judgeship. She said the leaders turned against her after her election as a civil court judge when she would not hire people they recommended. The Brennan Center for Justice joined the suit. A federal judge and the 2d Circuit ruled that, by excluding candidates who are not the choice of the party leaders, the process violates their First Amendment rights. The justices reversed, holding that the system does not violate the First Amendment rights of prospective party candidates. They ruled that, while New York’s system might be unfair, it is not unconstitutional. Writing on behalf of the court, Justice Antonin Scalia said that “A political party has a First Amendment right to limit its membership as it wishes and to choose a candidate-selection process that will in its view produce the nominee who best represents its political platform.” Traditional electoral practice “gives no hint of even the existence, much less the content, of a constitutional requirement for a ‘fair shot’ at party nomination.” Indeed, Scalia wrote, “Party conventions, with their attendant ‘smoke-filled rooms’ and domination by party leaders, have long been an accepted manner of selecting party candidates.” • See related story on the justices’ 5-3 ruling dismissing the fraud claims of investors against third parties because the investors did not rely on those fraudulent acts in buying or selling stocks. Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., No. 06-43.

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