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the IRA. Distributions to beneficiaries of a decedent are
includable in the gross income of the beneficiaries. Secs.
408(d)(1), 691(a)(1)(B). The portion of a lump-sum distribution
to a decedent’s beneficiary from an IRA, is, in the beneficiary’s
hands, income in respect of a decedent (IRD) in an amount equal
to the excess of the account balance at the date of death over
any nondeductible contributions by the decedent to the account.
Such amount is included in the beneficiary’s gross income the
year in which it is received. Sec. 691(a)(1). The portion of
the lump-sum distribution to the beneficiary in excess of the
entire balance (including unrealized appreciation, accrued income
and nondeductible contributions) in the IRA at the owner's death
is not income in respect of a decedent. Such amount is taxable
to the beneficiary under sections 408(d) and 72, see Rev. Rul.
92-47, 1992-1 C.B. 198, in the taxable year the distribution is
received. Section 691(a)(3) provides that the character of the
income in the hands of either the estate or decedent’s
beneficiary is the same as if decedent had such amount. If an
IRA owner dies before distributions were required to begin, the
owner’s interest in the IRA generally must be distributed to the
beneficiary within 5 years of decedent’s death. Sec.
401(a)(9)(B)(ii). If an IRA owner dies after distributions were
required to begin, the IRA assets generally must be distributed
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Last modified: May 25, 2011