Income in Respect of a Decedent

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 122-123

122

INCOME IN RESPECT

OFA DECEDENT

introduCtion

Many clients have retirement assets. These retirement assets as well as

other deferred income type assets may be subject to double taxation un-

less the advisor is aware of the IRD deduction. This section covers the

effective use of the IRD deduction in order to reduce the income tax

liability for the beneficiary of retirement assets.

hoW the ird deduCtion Works

Gross income of a decedent which was not includable in a Form 1040 of

the decedent prior to his death because he is on the cash basis is income

in respect of a decedent. This includes amounts of gross income in re-

spect of a prior decedent if the decedent’s right to receive such amount

was acquired by reason of the death of a prior decedent or by bequest,

devise, or inheritance from the prior decedent. [IRC Sec. 691(a)(1).]

Income in respect of a decedent is taxable in the year when received.

The character of the income is based upon the nature of the income

that it would have had in the hands of the decedent if the decedent had

lived and received such amount.

A person who includes an amount of income in respect of a dece-

dent is allowed a deduction for the federal estate tax attributable to the

income in respect of a decedent.

The federal estate tax attributable to IRD is based upon the dece-

dent’s highest marginal federal estate tax. It is computed by determining

the federal estate tax with the IRD in the estate and determining the

federal estate tax without the IRD. The difference is the federal estate

tax attributable to the IRD.

The recipient of IRD has the same basis for income tax purposes

that the decedent had prior to his death. No step- up in basis is permitted

even though the estate shows the value of IRD as an asset in the estate.