All the items of gross income with respect to a decedent which are not included in the taxable period in which falls the date of his/her death should be included in the gross income, for the taxable year when received, by[i]:

• the estate of the decedent, if the right to receive the amount is acquired by the decedent’s estate from the decedent;
• the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent’s estate from the decedent; or
• the person who acquires from a decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent’s estate of such right.

When a right to receive income is transferred by the estate or person entitled thereto by bequest, devise, or inheritance, or by reason of the death of the decedent, the transferor must include in his/her gross income for the taxable period in which the transfer occurs the amount of the consideration, if any, received for the right or the fair market value of the right at the time of the transfer, whichever is greater[ii].

Thus, upon a sale of a right to receive income by the estate or person entitled to receive it, the fair market value of the right or the amount received upon the sale, whichever is greater, is included in the gross income of the vendor[iii].

Similarly, if such right is disposed of by gift, the fair market value of the right at the time of the gift must be included in the gross income of the donor[iv].

If the estate of a decedent or any person transmits the right to income to another who would be required to include such income when received in his gross income, only the transferee will include such income when received in his gross income.  For instance, with respect to a decedent, if a right to income is transferred by an estate to a specific or residuary legatee, only the specific or residuary legatee must include such income in gross income when received.

[i] 26 USCS § 691 (a) (1)

[ii] 26 CFR 1.691(a)-4 (a)

[iii] Id

[iv] Id