Administration expense refers to the necessary expenditure incurred by an administrator while managing and distributing the estate of the deceased. It can be deducted from the taxable income even if the expense is not actually incurred at the time of filing the return. The term administration expense is often used as an alternative for administrative cost.
The following are examples of case law on the term:
In Estate of Baldwin v. Commissioner, 59 T.C. 654 (T.C. 1973), the court observed that administration expenses include (1) executor’s commissions; (2) attorney’s fees; and (3) miscellaneous expenses.
In Estate of Streeter v. Commissioner, 491 F.2d 375 (3d Cir. 1974), the court observed that “the amounts deductible from a decedent’s gross estate as “administration expenses” are limited to such expenses as are actually and necessarily incurred in the administration of decedent’s estate; that is, in the collection of assets, payment of debts, and distribution of property to the persons entitled to it. The expenses contemplated in the law are such only as attend the settlement of an estate and the transfer of the property of the estate to individual beneficiaries or to a trustee. Expenses not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees or devisees, may not be taken as deductions”.
In re Flynn Estate, 181 Mich. App. 570, 574 (Mich. Ct. App. 1989), the court discussed that fees of an attorney incurred for necessary services involved in the settlement of an estate are necessary expenses of administration allowable by the probate court.