Rollert Residuary Trust v. Commissioner

Edward Rollert was an executive vice president for General Motors (GM) at the time of his death. Before Rollert died, GM had made a tentative decision to award bonuses to several employees, including Rollert. He had consistently received other such employment bonuses from GM. The bonus was paid three months after Rollert’s death. The residue of Rollert’s estate was paid into a trust (plaintiff). Subsequently, the issue arose whether the posthumous bonus payment was considered income in respect of a decedent (IRD). IRD was subject to both income tax and estate tax, so the trust wished to have the funds declared not IRD. The government (defendant), on the other hand, argued that the payment was IRD. The relevant statute indicated that IRD constituted amounts to which a decedent was entitled as gross income but that could not be properly included in a prior taxable year. The trust argued that the bonus was discretionary for GM and that the word “entitled” should be read to be limited to instances in which a right to payment was legally enforceable. On the other hand, the government argued that a substantial likelihood that Rollert would receive the money was sufficient to make him entitled to it for purposes of the statute and thus make the bonus IRD. After the government filed a notice of deficiency in regard to the trust’s income tax, the trust filed suit. The trial court ruled for the government, and the trust appealed.