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rm9792 wrote:Again, i was not arguing how it was treated. Just the fact it is not double taxation. Why does everyone want to delve into law when i am just referring to the definition of "income". There are lots of forms of income and lots of ways it is handled. I, again, am talking at a very high level not the specific laws.

I can only speak for myself. What you said is income IS NOT income for federal tax purposes (unless you're a beneficiary of a tax deferred vehicle upon death - which should be excluded from the estate anyway, so the beneficiary gets stuck w/ paying the tax that was deferred).

I'm not sure what argument you're making "at a very high level not the specific laws." I guess that was lost on me and I have not followed this thread enough in detail. How you want to define income for your own "very high level" theoretical debate is fine I guess, but some of us have to deal with the reality of what is income and subject to federal income taxation (and "logic" contrary to that reality is something I don't like to see unchallenged).

rm9792 wrote:It is not double taxed. Yes the money your parents earned was taxed as income to them when they earned it. However when they die and it goes to you then it becomes income to you as yet untaxed by you. You were not in posession of the money or property till their death so now that you have income you must pay taxes on it. However, that being said I think estate taxes are out of line and should be abolished. If it must be kept then the rate should simply be the same as your regular tax rate.

Is your professor (the IRS auditor) telling you this? Is he/she maybe talking about tax deferred vehicles (like 401(k) beneficiary payout - 1099R) or how certain states in the U.S. have an inheritance tax?

If I'm gifted or inherit $50k in cash, how much income do I have to report & pay tax on? If I inherit a house that has a FMV of $250k (as valued @ estate) and then sell it for $200k six months later, how much would be taxable? If I give you a pistol that has a FMV of $1k, do I have to send you a 1099 (so you can pay tax on it)? If I had any doubt about how to answer these, I just might ask the federal tax professor to cover the treatment of gifts & inheritance again.