Publications 926 and 756 do not define compensation. 

Other than army and clergy employee housing is not typical in my part of the country.

I am not sure if this is compensation or a fringe benefit and what taxes it may be subjected to.

It is not a discriminatory plan... the kids are on payroll of the schedule C and the household employee is on the schedule H.

It is a separate structure so it is not renting a room, but the property is not sub-divided.  There are 4 buildings on the estate.

YES I GOT MY ASSUMPTIONS OFF THE CEILING because I am approaching a problem with a SOLUTION not a PROBLEM and am hoping the community can say if it is correct, incorrect or if there are other things I should be considering.  I am trying to give enough facts to give the guidance as to where to look.

This is an industry we learn from mistakes, I'd rather learn from someone else's mistake than create m own.