2 questions: annuity fees and irrevocable trust capital gains

[EA_TAX]

2 questions regarding the same client:

1)My client has an investment annuity account and pays management fees based on a percentage of the account. IRS Publication 550 allows for deductions for investment expenses that are ordinary and necessary expenses to produce or collect income or manage property held for income on Schedule A 2% of AGI. However, I don't believe that the annuity fees are allowable because the fees from the account are taken as part of the income the annuity produces. My issue is: I can't find the source document that supports that the fees are not deductible from an annuity to show my client. Am I correct the fees are not deductible?

2) Client has a Irrevocable Medicaid trust with the house and investments, and receives a 1099- DIV form with box 2a Capital Gains Distributions. Client does not receive the distributions, but I advised client they are reportable, and it doesn't matter that the client does not receive the distributions.

Thank you.
EA_TAX , NYS

[Burke]

1) There are no fee deductions for tax-deferred investments, much like an IRA, unless he pays them from taxable funds outside the annuity.

2) Why aren't the capital gains distributions payable to the trust? They are reportable, IMO, but by the trust. How is the rest of the investment income reported?