SSR 65-10: SECTION 211(c). -- TRADE OR BUSINESS -- TRUSTEE -- MANAGEMENT OF OFFICE BUILDING AND SECURITY PORTFOLIO
20 CFR 404.1050 and 404.1057
- Where a trustee of a $265,000 estate devoted an average of 40 hours a week for more than 12 years to the management of the trust property, a large part of which consisted of a security portfolio which he personally set up, managed, and supervised, and an $85,000 office building of which he acted as building manager, negotiating all leases, collecting rents, contracting for repairs, paying bills, etc., held, the trustee's activities constituted carrying on a trade or business and the fees allowed by the court for those services are includible in computing his net earnings from self-employment under section 211(a) of the Act.
K is the trustee of a trust created in 1943 pursuant to the will of his brother for the benefit of two children of K's brother. For more than 12 years after the administration of the estate was otherwise completed, K devoted practically his entire time to the management of the business and affairs of the trust estate. His latest accounting to the court shows total trust assets of $265,000, a large part of which are stocks and bonds. With a minor exception, all the stocks were procured by K as trustee, and throughout his trusteeship he has personally managed and supervised the entire security portfolio of the trust, including buying and selling of securities as circumstances warranted.
Among the trust assets is a two-story office building valued at $85,000, the main floor of which is rented to six or seven business establishments and the upper story is occupied by another organization and by the trust office. Throughout the term of the trust, K has been the building manager. He negotiated and renegotiated all leases, and arranged and contracted for all repairs and maintenance as well as improvements required to be made for tenants. In 1962 K collected 90 rental payments and received 96 dividend payments and numerous miscellaneous items. He personally handled all collections, prepared all checks, and handled all banking matters. He conducted all trust business from the trust office. His services as trustee average 40 hours per week and he has no other occupation. A part-time accountant makes entries in the books from memoranda and records prepared by K and also prepares the income tax returns of the trust. Attorney's fees for a year amount to $2,000. The court has each year approved a fee of more than $4,800 expressly for K's services devoted to the management of the business and the affairs of the trust estate. Each year since 1951, when self-employed persons first were required to pay the tax imposed by the Self-Employment Contributions Act on their self-employment income, K has reported the maximum amount of self-employment income which can be credited to an earnings account under section 211(b) of the Social Security Act.
The question presented is whether the earnings reported by K were properly creditable to his social security earnings account. For K to be entitled to credit for such earnings they must have been derived from the conduct of a trade or business.
Section 211 of the Social Security Act provides in pertinent part:
(a) the term "net earnings from self-employment" means the gross income,
as computed under Subtitle A of the Internal Revenue Code of 1954, derived
by an individual from any trade or business carried on by such individual,
less the deductions allowed under such subtitle which are attributable to
such trade or business, * * *.
* * * * * * *
- (c) the term "trade or business," when used in reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 of the Internal Revenue Code of 1954, * * *.
The basic issue is, therefore, whether K's activities as trustee constitute the carrying on of a trade or business. If so, K is entitled to credit for the fees he received as trustee.
Whether a person is engaged in a trade or business is dependent upon al the facts and circumstances in the particular case. As a general rule, when a person is regularly engaged in an occupation or profession for profit and, as to such occupation or profession, is not an employee or is not otherwise excluded from the self-employment provisions of the Act, such a person is engaged in a trade or business within the meaning of section 211(c).
A professional fiduciary or executor who regularly engages in fiduciary services and handles a number of estates or trusts is engaged in a trade or business. A nonprofessional fiduciary (for example a person who serves as executor, administrator, or trustee in isolated instances, and then only as personal representative for the estate or trust of a deceased friend or relative) generally is not engaged in a trade or business. SSR 60-27, C.B. 1960-61, p. 60. However, in certain rare cases there may be a very large estate or trust which is of such complexity and long duration that its administration requires extensive management activities over a long period of time. In such instances, the activities of a nonprofessional fiduciary of a single estate or trust may constitute the conduct of a trade or business and the fees from such activities would be includible in computing net earnings from self-employment.
In the present case, K served as trustee of only a single estate; however, the estate of which he was trustee was of substantial size and complexity, with assets valued at $265,000. K's duties as trustee involved the management of both an office building and a considerable portfolio of securities. These activities required the performance of an average of 40 hours of work per week and were carried on for many years. Accordingly, it is held that K's fiduciary activities constituted the conduct of a trade or business. Therefore, all of his fees expressly allowed by the court for such activities are includible in computing his net earnings from self-employment.