Confused about income in respect of decedent (IRD) - Double taxation issue?

You're right to be confused - Income in Respect of Decedent (IRD) can be tricky! Let me clear this up: Yes, income generated after death (over $600) requires a Form 1041 for the estate. And yes, when that income is distributed to beneficiaries, they report it on their personal returns using Schedule K-1. But it's not exactly double taxation in the way you might think. The estate gets a deduction for income that's distributed to beneficiaries on the 1041. So if the estate distributes all the IRD to beneficiaries, the estate effectively pays no tax on that income - the tax burden shifts to the beneficiaries. Where it gets complicated is with items that are considered IRD under Section 691 - like retirement accounts, unpaid wages, or investment income earned but not received before death. These items can face estate tax AND income tax, but there's a deduction available on the beneficiary's return (IRC Section 691(c)) to offset some of this overlap.

After losing my father last year, I was completely overwhelmed trying to figure out all these estate tax issues - especially the IRD stuff with his retirement accounts and investment income. I stumbled across https://taxr.ai when I was desperately searching for help understanding what needed to go on the 1041 versus what I needed to report on my own taxes. The tool actually analyzed all his financial statements and death certificate and then explained exactly which income sources qualified as IRD, which forms needed to be filed, and how to handle the distributions to minimize tax impact. It saved me from making some pretty costly mistakes with his IRA distributions that would have created unnecessary tax burdens. If you're handling an estate with various income sources, it might be worth checking out - especially for figuring out those tricky IRD classifications and understanding the deductions available.

Wow I finally tried https://taxr.ai after seeing the recommendation here and I'm blown away! I uploaded my dad's death certificate, his final statements, and the income docs from after he died. It immediately identified that three of the dividend payments were actually declared before his death (something I had no idea about) and explained they needed different handling as IRD. It also showed me exactly where to claim the deduction on the 1041 for distributions to beneficiaries and generated a checklist of all the required forms. What a lifesaver! I was about to pay an accountant $2,000 to handle this. Now I feel confident enough to complete most of it myself.

If you're struggling to get official answers about IRD and estate taxation, you might want to consider using https://claimyr.com to get through to the IRS directly. When my uncle passed last year, I had a similar confusion about some complex IRD issues with his annuity payments and rental income. I tried calling the IRS for weeks but could never get through. Claimyr got me connected to an actual IRS agent in about 30 minutes, and they explained exactly how to handle the reporting on both the 1041 and my personal return. They also confirmed which income sources qualified for the 691(c) deduction, which ended up saving me over $3,000 in taxes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone system for you and calls you back when an agent is available.

I have to eat my words. After my skeptical comment, I decided to try Claimyr out of desperation (https://claimyr.com) since I've been trying to reach the IRS for 3 months about my mother's estate tax situation. Within 45 minutes, I was talking to an actual IRS estate tax specialist who answered every single one of my IRD questions! The agent confirmed that I was handling the income distributions correctly on the 1041 and helped me understand exactly how to claim the 691(c) deduction for the IRD that had already been subject to estate tax. She even sent me to a specific IRS publication that addresses unusual IRD situations like mine. For anyone dealing with estate tax issues, especially complicated IRD questions, being able to actually speak with an IRS specialist makes all the difference. I'm still shocked it actually worked.

Just to add another perspective - I'm an accounting student and we just covered IRD in my tax class. The professor explained that IRD includes things like: - Uncollected salary or wages - Dividends declared but not received - Interest earned but not collected - Retirement account distributions not taken before death The key is that the decedent had the right to receive the income before death, but it wasn't actually received or reported until after death. The estate (or beneficiary) "steps into the shoes" of the decedent for tax purposes.

Am I the only one who thinks it's fundamentally unfair that IRD gets taxed twice? Like if someone dies with a big 401k, the estate pays estate tax on the full value, then the beneficiary pays income tax when they withdraw? Even with the 691c deduction it doesn't fully offset. The govt basically gets a windfall just bc someone died. SMH.

The confusion about IRD and double taxation is completely understandable - I went through the same thing when my father passed last year. What really helped me was understanding that the "double taxation" issue primarily affects larger estates that actually pay estate tax (over the $12.92 million exemption). For most people, like with your grandmother's $2,500 in post-death investment income, there likely won't be any estate tax at all. The estate reports the income on Form 1041, takes a distribution deduction when it passes to you, and you pay income tax on it via the K-1. So it's really just one layer of taxation - at your personal rate. The real IRD "double tax" scenario comes into play with things like large retirement accounts where the account value was subject to estate tax AND the withdrawals are subject to income tax. But even then, the 691(c) deduction helps offset some of that burden. One thing to watch for with your grandmother's investments - make sure to distinguish between dividends that were declared before her death (classic IRD) versus those declared after. The reporting is slightly different even though both end up on the 1041.