Rev. Rul. 80-87

1980-1 C.B. 189, 1980-13 I.R.B. 8.

                       Internal Revenue Service
                                 Revenue Ruling

                          HONORARY CORPORATE DIRECTOR

                           Published: March 31, 1980

ISSUE

Section 1402.--Definitions, 26 CFR 1.1402(a)-1: Definition of net earning from self-employment.

  Honorary corporate director. Payments received by an honorary director of a corporation who has served as an active director for a period of 20 years and who is not longer required to perform any services for the corporation are includible in net earnings from self-employment.

  Are payments to honorary directors of a corporation who are not required to perform services for the corporation includible in net earnings for self- employment under section 1402(a) of the Internal Revenue Code?

FACTS

  The corporation appoints individuals who have served as directors for a period of 20 years to the position of honorary director.  Honorary directors are not required to attend any directors' meetings and do not have voting powers.  The corporation pays the honorary directors a fee whether or not they attend the meetings.

LAW AND ANALYSIS

  Section 1402(a) of the Code provides that the term 'net earnings from self- employment' means an individual's gross income from, less the allowable income tax deductions attributable to, a trade or business.

  Rev. Rul. 72-86, 1972-1 C.B. 273, holds that the fees received by the director of a corporation for performing services on its board of directors are income from a trade or business and are includible in computing net earnings from self-employment.

  Section 1.1402(a)-1(c) of the Income Tax Regulations provides that gross income from a trade or business includes gross income received or accrued in the taxable year of the individual even though such income may be attributable in whole or in part to services rendered in a prior taxable year as to which the individual was not subject to the tax on self-employment income.

  Rev. Rul. 68-498, 1968-2 C.B. 377, holds that royalties received by an author from previously published books are includible in computing net earnings from self-employment under section 1402(a) of the Code.

  In addition, Rev. Rul. 54-312, 1954-2 C.B. 327, holds that renewal commissions paid to life insurance agents who perform no services at the time they receive their commissions, and who may be retired, are includible in determining net earnings from self-employment at the time paid, since they are based on services rendered at the time of sale of the policies.

  In the instant case, the payments to the honorary directors, who do not attend meetings or perform any services as directors, are attributable to their prior services within the meaning of section 1.1402(a)-1(c) of the regulations.

HOLDING

  The payments to the honorary directors are includible in net earnings from self-employment under section 1402(a) of the Code.

Rev. Rul. 80-87, 1980-1 C.B. 189, 1980-13 I.R.B. 8.