Trusts find this additional activity appealing as a revenue producer because little effort is required on their part to derive financial benefits. The existence of this type of income is often hidden in the trust's financial statements as miscellaneous income, income from sources other than investments, or some similar caption. All income accounts must be analyzed to make a determination. An employee trust may earn commissions or fees for services rendered. The income from such activities are subject to the unrelated business income tax under IRC 511.
Factoring is a trade or business.
The profits derived from this operation do not constitute interest on investments as may be shown on the financial statements. Some trusts own property and may operate the activity rather than lease the property. For example, if the creator corporation is a paper company, ascertain that the price the employer pays the trust for the timber is reasonable. See Rev. Rul. Verify this by reviewing the information return for an entry reported as investment income.