Income in respect of a decedent (IRD) is income to which a person is entitled at death that was never taxed during the person’s life. IRD is subject to both estate tax and income tax. Individuals who plan gifts to charity can minimize the tax loss by funding a gift to charity with IRD rather than other assets.
Rather than try to report all income received after a decedent’s death on the final income tax return, the Internal Revenue Code (IRC) provides for taxing the beneficiary on the postmortem income as it is received. While there is no definition of IRD in the IRC, Treasury Regulations provide a general guideline as “those amounts to which a decedent was entitled as gross income but which were not properly includable in computing taxable income for the taxable year ending with the date of his death.” What constitutes IRD can vary depending on the type of income received, the method of accounting used by the decedent, and the date the income is actually received. IRD may include:
- Uncollected salaries, wages, bonuses, commissions, vacation pay, and sick pay.
- Certain deferred compensation and stock option plans.
- Qualified pension plans, profit sharing plans, SEP, Keogh, and IRA except nondeductible contributions.
- Accounts receivable of a cash basis sole proprietor.
- Interest and dividends accrued but unpaid at death of cash basis decedent.
- Rents and royalties accrued before death of cash basis taxpayer.
- Difference between the face amount and the decedent’s basis in an installment sales obligation.
- Interest accrued through the date of death on Series EE bonds, unless (1) decedent elected to report interest annually, or (2) the interest was reported on the decedent’s final Form 1040.
- Annuity payments in excess of decedent’s investment in the contract.
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson before making or planning your gift.