The designated beneficiary of the IRA is responsible for the income taxes on distributions from the inherited IRA, not the estate, even if income taxes must be paid on behalf of the decedent for the year of death. By operation of law, the designated beneficiary is the one for whom the IRA is maintained immediately upon the death of the participant, so the IRA custodian will normally require that the inherited IRA for the beneficiary be established before making any distributions after the death of the participant. When the beneficiary is other than the estate of the decedent, distributions taxable to the estate are not permitted.
Whether the beneficiary takes a distribution from the IRA to pay the decedent's year-of-death tax bill or pays it from other funds is irrelevant. If the decedent's gross estate (which includes the IRA no matter the beneficiary) had sufficient assets to satisfy the tax liability, the beneficiary is responsible for paying the decedent's year-of-death income tax if the probate estate has insufficient assets. If the beneficiary does not make the payment, while the IRS can come after the beneficiary to obtain the payment, the IRS does not always make the effort.
