Mostly-retired lawyer is compensated as the trustee or co-trustee for about 10 trusts, including one revocable grantor trust. On most of the trusts, there is a corporate co-trustee that manages the money, keeps the records, etc. His role is involvement in other than normal distributions—to buy a house, pay alimony, lend to a business, pay for education, etc; discussions with the beneficiaries, signing Crummey letters prepared by insurance agent, and as a go-between for the grantor (such as explaining what the lawyers are saying). In a normal year he spends no more than 40-60 hours doing this. Last year was different, in that when it seemed they might lower the estate exclusion to $3.5 million, there were new trusts created and gifts made to use the $11 million exclusion. He put in about 80 hours.
Question: Can this qualify as passive activity income so he can use it to offset passive real estate losses?
My answer is no because of Sec 469(e)
(3) Compensation for personal services
Earned income (within the meaning of section 911(d)(2)(A)) shall not be taken into account in computing the income or loss from a passive activity for any taxable year.
His answer is yes because his participation is not regular, continuous, and substantial (the (h)(1) definition).
There's some discussion in the preamble to 1.469-1T and some wording in 1.469-2T that I think supports my answer, though not on the exact facts I have. TAM 9621002 is closer to my facts and I also think supports my answer.
But he's stubborn, so what can you guys tell me on this?