Filing Form SSA-1724 Results in SSA-1099 in Beneficiary's Name

[DirectorBoy]

This seems like the simplest situation, but I cannot find a firm answer.

Because of the timing of my mother's death in 2022, I had to file form SSA-1724 in order to receive her final Social Security payment. There is no estate, and thus no estate taxes, no K-1, no 706, etc. I am the sole heir, and that final SS payment was made directly to me. This resulted in me receiving form SSA-1099-SM, with Social Security reporting that final payment as income paid to me under my SSN, but "on behalf of" my dec'd mother.

As I understand it, this would be classified as IRD (Income in Respect of a Decedent), and should only be taxable to me in the same way as it would have been taxable to her. She had no other income and would not have paid taxes at all in 2022.

Do I have this right? If so, I cannot figure out how to report this income on my return without it being taxable to me. I wouldn't have guessed this to be a rare scenario. Any guidance would be wonderful. Thanks!

[Bsch4477]

How is IRD taxed? IRD is income that would have been included in the decedent’s tax returns, if they were still living but was not included in the final tax return. Where the IRD is reported depends upon who receives the income. If it is paid to the estate, it needs to be included on the fiduciary return. However, if IRD is paid directly to a beneficiary, then the beneficiary needs to include it in their own tax return.

[DirectorBoy]

Right, and in this case, it was paid directly to the beneficiary (me) and must be included on my tax return. I just don't know how to do that without being taxed on it, since she would not have been taxed on it had she not passed away.

[Bsch4477]

You will be taxed on it. It is your income. 

[DirectorBoy]

Yes, but I should be taxed on it at the same rate that she would have been taxed on it, correct? She would have been taxed 0%. Everything I'm reading states that IRD is taxed as if the decedent is still living.

[Bsch4477]

Read my answer again. If the income went to the estate it would be taxed as part of her estate. If it goes to a beneficiary it’s reported on that return and so it is taxed at that tax rate. 

[DirectorBoy]

I don't need to read your answer again, I know what you're saying and am not an idiot. Your statement stands in complete contrast to what I've been told by two different tax professionals, who have been clear that I shouldn't owe taxes on IRD if the decedent wouldn't have owed taxes on that same income. No different than regular inheritance, which is what this payment would have been had she died one day later. If you disagree with that, then it sounds like I've got an entire other issue I need to nail down.