Investment Expense

1. Investment companies do not send 1099-Rs for investment fees. 1099-Rs are reserved for distributions.
2. Investment fees typically show up as a line entry in a consolidated broker statement for a taxable investment account. This is the tax statement that shows dividends, interest, capital gain distributions, the disposition of capital assets, etc.
3. Investment fees paid inside of an IRA do not create any tax deduction. They just reduce the value of your IRA.
4. Investment fees paid inside of a taxable investment account do create a tax deduction if you itemize your tax deductions. The fees are entered on Line 23 of Schedule A.
5. If your investment company is charging fees to manage an IRA and one wants a tax deduction for those fees, one needs to inform the IRA trustee to bill those fees outside of the IRA account.

If he's getting a 1099R, it seems like the investment company is doing it by taking the money out of the IRA, then using that distribution to pay the fee, instead of paying the fee inside the IRA as you describe in #3.

If they're doing this, it seems like he'd have to pay tax on the distribution, then he can deduct the fee, and these two cancel each other out.

I wonder if he was trying to get the tax deduction, but didn't have enough outside funds, so he told them to withdraw it from the IRA, not realizing that this negated the tax benefits.

If they did this without his express instructions, is it permitted?

In all my years of looking at 1099-Rs, I have never seen an investment company distribute the fees to the owner (and yes it is a taxable distribution) and keep the funds. Either the fee is taken directly from the IRA (not a constructive distribution) or paid directly by the owner with after-tax dollars.

Answering your question directly, NO the trustee can not distribute the fee without the owner's permission. The trustee can not make any distribution without the IRA owner's permission.