Question

Josephine stated in her will her niece Mary would serve as an executor for her estate. Mary received $15,000 for such service. What do you think, would such compensation be included in Mary's gross income?

Explain. A college student may receive, a scholarship, compensation for service rendered to the educational institution, or a gift. Considering exclusion/inclusion in taxable income, are the three treated the same? Explain.

Answer 1

Question 1)'

As per the statutory laws:

All personal representatives must include in their gross income fees paid to them from an estate. If paid to a professional executor or administrator, self-employment tax also applies to such fees. For a nonprofessional executor or administrator (a person serving in such capacity in an isolated instance, such as a friend or relative of the decedent), self-employment tax only applies if a trade or business is included in the estate’s assets, the executor actively participates in the business, and the fees are related to operation of the business.

The non-professional fee paid to a relative will not be considered as receiving income from trade or business unless all the following conditions are met:

1. there exists trade or business among the assets of estate

2. the executor is an active participant in the operation of trade or business

3. fees of the executor is related to the trade or business

As per the question, if all the above conditions are satisfied for Mary, then $15,000 received for being the executor of Josephine's estate should be included in her gross income, otherwise not.

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