## Facts

- Edward D. Rollert, a General Motors (GM) executive vice president, participated in GM stock option and executive bonus plans that awarded deferred cash and stock compensation.
- GM customarily determined executive bonuses early in the year after the service year; larger bonuses were often paid in installments over later years.
- Rollert died on November 27, 1969, after nearly 11 months of service in 1969.
- In March 1970, GM’s bonus committee awarded Rollert a 1969 bonus of 1,786 shares of GM stock and $285,763 in cash.
- Rollert had received substantial annual bonuses for prior years, and GM’s established practice was to award bonuses to all executive vice presidents for each eligible year; GM also commonly paid bonuses even when employment ended during the bonus year if a minimum service period was met.
- Under a 1960 trust agreement, Rollert created a marital trust and a residuary trust; the petitioner was the residuary trust administered by a corporate trustee.
- Rights to the post-death 1969 bonus and to post-death installments of previously awarded bonuses were held by the estate and then distributed to the residuary trust.
- The IRS determined income tax deficiencies for the trust for 1973–1975 based on treating (i) the 1969 bonus awarded after death and (ii) post-death installments of pre-death bonuses as income in respect of a decedent (IRD) under I.R.C. § 691, taxable in full when received by the trust without any basis increase from the estate’s distribution.

## Issues

1. Whether the 1969 GM bonus, attributable to Rollert’s pre-death services but formally awarded after his death, constituted IRD under I.R.C. § 691.
2. Whether the estate’s distribution of IRD rights to the residuary trust was an amount “properly paid or credited” under I.R.C. §§ 661(a)(2) and 662(a)(2), such that the trust would obtain a fair-market-value basis (or otherwise avoid full taxation) when it later collected the payments.

## Decision

- The Tax Court held that the post-death 1969 bonus was IRD under I.R.C. § 691 because it was attributable to pre-death services and was sufficiently fixed in substance at death based on GM’s established practices and pre-death determinations.
- The Tax Court held that distributing IRD rights from the estate to the residuary trust did not cause those rights to be “properly paid or credited” under §§ 661–662 and did not create a new (fair-market-value) basis in the trust’s hands.
- The trust was required to include the amounts in income when received; deficiencies were sustained, subject to Rule 155 computations.
- The Sixth Circuit affirmed.

## Legal Principles

- Compensation attributable to a decedent’s pre-death services may be IRD under I.R.C. § 691 even if formal corporate approval occurs after death, where the employer’s practice and surrounding facts show the right was effectively earned and expected at death.
- IRD does not receive a basis adjustment to fair market value by reason of death or by an estate’s later distribution; § 691 preserves taxation of the item when collected, with relief generally provided through the estate-tax-related deduction mechanism rather than basis step-up.
- A distribution by an estate of an IRD right (a right to future income) to a beneficiary does not, by itself, constitute an amount of income “properly paid or credited” for purposes of I.R.C. §§ 661(a)(2) and 662(a)(2); the transfer is treated as a distribution of property, and the income character remains to be recognized upon receipt by the beneficiary.

## Conclusion

The Tax Court treated Rollert’s post-death GM bonus and related installment rights as IRD taxable when collected and rejected the trust’s attempt to convert the estate’s distribution of those rights into a DNI carryout or a fair-market-value basis, thereby requiring the trust to report the payments as ordinary income when received.


Edward D. Rollert Residuary Tr. v. Comm’r, 80 T.C. 619 (1983)