Thanks, that confirms what I had thought until a service
troll from the annuity company claimed that the basis only
applied to the annuitant, not the beneficiary, so that the
entire amount would be taxable as ordinary income. My
normal accountant having chosen to take some time after tax
season pressure was off, I had done a search on the IRS site
but had had no success in finding a pertinent section, not
knowing where to begin to look.

Anyway, thanks for the information, and glad you amplified
as I would have had to come back and get a definition of
"deferred income" otherwise.

Although, now that I read the response again, I'm puzzled by
the clause "This income would be in respect of a decedent".
The decedent got no income so only the implication on the
estate taxes would seem to apply?

My understanding is the beneficiary will be taxed (as
ordinary income) on the (positive) difference between the
decedent's basis and the value received at payout reduced by
the amount paid as estate taxes by the decedent's estate.
Is that correct or is there something else I'm missing here?

Thanks...

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

The difference between value at date of death and decedent's
basis represents deferred income and would retain that
character in the hands of the beneficiary. This income
would be in respect of a decedent and there would be a
deduction for any estate taxes paid on its value.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

deferred income remains deferred income

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Deferred income remains deferred income.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

What is tax implication to beneficiary of an unqualified
annuity on death of the annuitant? Specifically, is the
basis in the annuity inherited by the beneficiary or not?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >