Unfortunately, this is a taxable distribution. It's only nontaxable if the IRA custodian takes the fee for management of the IRA directly from the account and does not issue a Form 1099-R. The fact that you received a Form 1099-R indicates that you yourself took a distribution to pay the fee outside of the IRA, and the fact that the money was used to pay a management fee is irrelevant to taxability of the distribution.
