Question to be answered: Do the fees stem from a personal relationship with the decedent that is not based on particular expertise or special qualities?
According to Regs. Sec. 1.1402(c)-1, a taxpayer must carry on a trade or business, either as an individual or as a member of a partnership, in order to have net SE earnings.
According to Rev. Rul. 58-5 Generally, nonprofessional fiduciaries (that is, for example, persons who serve as executor or administrator in isolated instances, and then as personal representative for the estate of a deceased friend or relative) will not be treated as receiving income from a trade or business unless all of the following conditions are met:(a) There is a trade or business among the assets of the estate,(b) The executor actively participates in the operation of this trade or business,(c) The fees of the executor are related to the operation of the trade or business.
However, according to
Rev. Rul. 58-5, in some circumstances, even though the estate’s assets do not include a trade or business,
if the management activities required of the executor for administering the estate are sufficient in scope and duration, these activities could constitute operation of a trade or business and the income be deemed SE income.
In Rev. Rul. 72-86, the IRS distinguished between the SE treatment of the fees paid to executors and fees paid to persons serving in a fiduciary capacity as members of a corporation’s board of directors. According to the IRS, the fees received from a corporation for performing services as a board director are SE income because the individual’s work is on a regular and continuous basis and is based on that individual’s qualities or expertise. The Service stated that fees paid to a nonprofessional executor or personal representative (except in certain circumstances) are not SE because the services are performed on an isolated basis and stem from a personal relationship with the decedent that is not based on particular expertise or special qualities.
The IRS summarizes its position on fees received by nonprofessional executors or personal representatives in
Publication 559 https://www.irs.gov/pub/irs-pdf/p559.pdf ,
Survivors, Executors, and Administrators: 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.
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