Category: Estates & Trusts: Income Tax
Subject: Income
Title: Taxation of IRA Distribution
IRC Sections: 408(d)(1); 72
Filename: 1076.html
Date Produced: 8/97 Copyright 1998, The Tax Resource Group. All rights reserved. Telephone
800-578-3498. Internet: www.taxresourcegroup.com Background
The taxpayer is an estate which received the proceeds of the decedent's
IRA. Under the terms of the decedent's will, the money from the IRA will
pass through the estate to the decedent's sister. Issue
Is the estate taxable on this distribution from the IRA? Answer
Yes, the estate is taxable on the distribution. Discussion
An estate is a legal entity which has its own discrete tax existence and
is a tax-paying entity. Section 408(d)(1) provides that the payee or distributee
of an IRA shall include the amount paid or distributed in gross income in
the manner provided under Section 72. Under this general rule, it seems
that in the absence of an explicit reason to do otherwise, the estate must
include the IRA distribution in its gross income subject to tax. I find
no indication of a special rule that would change this result. I find nothing
to indicate that because the sister is the ultimate recipient of the IRA
money, the sister is then directly taxable on the distribution. Accordingly,
I conclude that the general rule applies and the decedent's estate is taxable
on the distribution. Presumably, to the extent the estate distributes
income to its beneficiaries, it should be able to obtain an income distribution
deduction such that the income recognized by virtue of having received the
IRA distribution can be offset in whole or in part by the income distribution
deduction. | 
