Legal Definitions - IRD

IRD stands for Income in Respect of a Decedent.

This legal term refers to specific types of income that a person was entitled to receive before their death, but which they had not yet received at the time of their passing. Instead, this income is paid to their estate or beneficiaries after their death. While it is included in the deceased person's estate for estate tax purposes, it is *not* reported on their final individual income tax return. Instead, the person or entity (such as an heir or the estate itself) who actually receives the IRD is responsible for paying income tax on it.

Here are some examples to illustrate how Income in Respect of a Decedent works:

• Unpaid Salary or Bonus: Imagine a marketing executive who worked for a company and was due a significant year-end bonus, which was typically paid in January of the following year. If the executive unfortunately passed away in December, before the bonus was paid, that bonus would be considered IRD. When the company pays the bonus to the executive's estate or designated beneficiary in January, that recipient would be responsible for including it as income on their own tax return, even though the executive earned it.

• Retirement Account Distributions: Consider an individual who had a traditional IRA. Upon their death, their adult child is named as the beneficiary. When the child takes a distribution from the inherited IRA, that money is considered IRD. The deceased parent was entitled to those funds, but had not withdrawn them. Therefore, the child, as the recipient, must include the distribution as taxable income on their personal income tax return, just as the parent would have if they had lived and taken the distribution themselves.

• Installment Sale Payments: Suppose a homeowner sold a piece of land to a buyer through an installment agreement, meaning the buyer would make payments over several years. If the homeowner died after the sale was completed but before receiving all the installment payments, the remaining payments received by their estate or heirs would be classified as IRD. Each subsequent payment received by the estate or beneficiary would be taxable income to them, reflecting the original character of the gain from the land sale.