Key takeaways
– Income in respect of a decedent (IRD) is income the decedent had a right to receive but did not receive before death. The beneficiary (or the entity that receives the payment) is generally responsible for the income tax on IRD when they receive it.
– IRD is included in the decedent’s estate for estate‑tax purposes, which can create a “double tax” effect; however, beneficiaries may be able to deduct the estate tax attributable to the IRD under Internal Revenue Code §691(c).
– IRD retains the tax character it would have had if the decedent had received it (ordinary income, capital gain, etc.), and there is no step‑up in basis for IRD items.
– Special rules apply to tax‑deferred retirement accounts (IRAs, 401(k)s) and required minimum distributions (RMDs), and different distribution rules apply for spouses versus other beneficiaries.
Definition and common sources of IRD
– IRD = amounts that were due to the decedent but not received before death. It is defined in Internal Revenue Code §691.
– Common examples:
• Unpaid salary, commissions, bonuses, or fees earned but unpaid at death
• Uncollected interest, dividends, rents, royalties payable after death
• Installment sale payments owed to the decedent
• Distributions from tax-deferred retirement plans (traditional IRAs, 401(k)s) that are inherited
• Deferred compensation, unpaid partnership income, and similar accruals
How IRD is taxed
– The beneficiary reports IRD on their income tax return in the year the payment is received.
– IRD retains the tax character it would have had for the decedent:
• Ordinary income (wages, pensions, traditional IRA distributions) taxed at ordinary rates
• Capital gains taxed at capital‑gains rates
• Interest and dividends taxed in their normal categories
– There is no basis step‑up for IRD: the beneficiary cannot increase basis in the underlying asset because the income was never received by the decedent.
– Because IRD is included in the decedent’s gross estate for estate‑tax purposes, the same economic item can be taxed in two ways: once as part of the estate (possibly producing estate tax) and again when the beneficiary pays income tax on receipt. Under IRC §691(c) a beneficiary may be able to claim a deduction for that portion of the estate tax that is attributable to the IRD.
Retirement accounts, RMDs, spouses, and beneficiary categories
– Retirement accounts (traditional IRAs, 401(k)s) are classic IRD. Distributions to beneficiaries are taxed as ordinary income when received.
– Spouse as sole beneficiary:
• A surviving spouse often has more options (e.g., rollover the IRA into their own IRA, treat as their own, thereby postponing taxable distributions and RMDs until their required age).
– Non‑spouse beneficiaries:
• The SECURE Act (2019) generally requires most non‑spouse beneficiaries to distribute inherited retirement accounts within 10 years for deaths after 2019, subject to exceptions for “eligible designated beneficiaries” (spouse, minor child until majority, disabled, chronically ill, or someone not more than 10 years younger).
• SECURE 2.0 (2022) and subsequent rule changes adjusted RMD ages for owners, but the inherited-account rules described above remain important for beneficiaries. Consult the latest IRS guidance for timing and RMD rules.
– If the decedent died after they had reached the RMD age and had not taken their RMD for the year, the RMD amount can be IRD and may be reportable by the beneficiary or the estate.
Reporting IRD — practical forms and timing
– Beneficiary receives and reports IRD in the year of receipt.
• For retirement distributions, the payer will normally issue Form 1099‑R to the recipient (beneficiary or estate). Report the amount on Form 1040 as retirement income.
• Other types of IRD (interest, dividends, rents, etc.) will typically be reported with the appropriate 1099 (1099‑INT, 1099‑DIV, 1099‑MISC/NEC). If payments come from an estate or trust, those distributions may pass through via Schedule K‑1.
– Estate/trust reporting:
• The decedent’s estate or trust files Form 1041 if it has taxable income or makes distributions; distributions of IRD to beneficiaries may be deductible by the estate/trust and reported to beneficiaries on Schedule K‑1 so that beneficiaries report the income.
– Estate tax deduction for IRD (IRC §691(c)):
• If estate tax is paid and a portion is attributable to IRD, the beneficiary may be able to claim a deduction on their own income tax return for the estate tax attributable to the IRD in the year they include the IRD in income. The computation and documentation can be complex—work with a tax advisor.
Practical steps for executors, trustees, and beneficiaries
Executor/trustee responsibilities
1. Identify assets and potential IRD items: review payroll records, retirement accounts, deferred compensation, installment sale contracts, partnership K‑1s, and any accrued payments.
2. Obtain and issue proper tax forms: coordinate issuance of Forms 1099 and Schedule K‑1 for distributed IRD items so beneficiaries receive the information needed to report income.
3. Determine estate tax exposure: include IRD amounts in the gross estate for estate tax purposes. If estate tax is likely, calculate and document allocations of estate tax to IRD items (preserve records for beneficiaries to claim any allowable deduction).
4. File timely estate tax returns (Form 706) if required, and file Form 1041 for the estate/trust if necessary.
Beneficiary actions
1. Confirm the character of the amount received (ordinary income, capital gain, retirement distribution, etc.). This determines tax rates and reporting.
2. Expect to receive IRS information forms (1099‑R, 1099‑INT, 1099‑DIV, K‑1); reconcile those forms before filing your return.
3. If you inherit retirement accounts, determine whether you are eligible to roll over (spouse) or must follow 10‑year/other distribution rules (non‑spouse). Plan distributions and withholding to manage tax brackets.
4. If estate tax was paid and is attributable to IRD you receive, ask the executor for the computation and documentation so you (or your tax preparer) can claim any allowable deduction under IRC §691(c).
5. Keep careful records: statements showing the payment, estate tax allocation information, trustee/executor communications, and copies of Forms 1099/ K‑1.
Simple numeric example (IRD + estate tax allocation)
– Example: Decedent’s gross estate includes a $200,000 IRD item and $800,000 of other assets. Estate tax is hypothetically $100,000. If estate tax is allocable proportionally, 20% of estate tax ($20,000) might be attributable to the IRD. When the beneficiary receives the $200,000 IRD and pays income tax on it, the beneficiary may be able to deduct the $20,000 estate tax attributable to the IRD on their income tax return (subject to rules and proper computation/documentation).
How IRD differs from inheritance
– Inheritance = property or assets bequeathed to beneficiaries. Most inheritances themselves are not taxable as income to beneficiaries (although income generated by inherited assets can be taxable).
– IRD is specifically unpaid taxable income owed to the decedent before death. Unlike a tax‑free inheritance of principal, IRD is taxable income to the recipient and must be reported.
When to get professional help
– Calculating estate‑tax allocation to IRD, deciding optimal distribution strategies for inherited retirement accounts, and preparing the tax returns can be complex. Consult a qualified tax professional or estate attorney when:
• The estate has substantial assets, retirement accounts, or potential estate tax exposure
• IRD items are numerous or involve complicated allocations (installment sales, partnership K‑1s)
• You expect to claim the IRC §691(c) deduction or need to coordinate Form 1041 and beneficiary returns
Authoritative resources and references
– IRS Publication 559, Survivors, Executors, and Administrators (instructions about final returns and estate income):
– Internal Revenue Code §691, Recipients of Income in Respect of Decedents:
– IRS Retirement Plan and IRA Required Minimum Distributions (RMD) FAQs:
– SECURE Act (H.R.1994, 2019) and SECURE 2.0 (Consolidated Appropriations Act, 2023) — changes affecting inherited retirement accounts and RMD ages
– IRS announcement of tax inflation adjustments for 2025 (estate tax exclusion level)
Bottom line
IRD is taxable income that the decedent was entitled to but did not receive before death. Beneficiaries must include IRD in income when received, and the IRD keeps the same tax character it would have had for the decedent. Because IRD is also counted in the decedent’s estate, planning and careful coordination between executors and beneficiaries—especially for retirement accounts and when estate taxes apply—is essential to minimize surprises and claim any allowable deductions. For computation and filing nuances, work with a CPA or estate attorney.