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TITLE 26-INTERNAL REVENUE CODE (Aug. 16, 1954, ch. 736, 68A Stat. 235; Oct. 4, 1976, Pub. L. 94-455, title XXI, § 2131(e)(1), 90 Stat. 1924.) AMENDMENTS 1976-Pub. L. 94-455 substituted provisions relating to use of trust as an exchange fund for provisions set- ting forth rule that this part applies only to taxable years beginning after Dec. 31, 1953, and ending after the date of the enactment of this title and exceptions thereto. EFFcTivE DATE OF 1976 AmENDMENT Amendment of section by Pub. L. 94-455 effective on Apr. 8, 1976. in taxable years ending on or after such date, see section 2131(f)(6) of Pub. L. 94-455, set out as an Effective Date of 1976 Amendment note under sec- tion 584 of this title. PART II-INCOME IN RESPECT OF DECEDENTS Sec. 691. Recipients of income in respect of decedents. 692. Income taxes of members of Armed Forces on death. § 691. Recipients of Income in respect of decedents (a) Inclusion in gross income (1) General rule The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by bequest, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of: (A) the estate of the decedent, if the right to receive the amount is acquired by the de- cedent's estate from the decedent; (B) 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 dece- dent's estate from the decedent; or (C) the person who acquires from the de- cedent 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. (2) Income In case of sale, etc. If a right, described in paragraph (1), to re- ceive an amount is transferred by the estate of the decedent or a person who received such right by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent, there shall be included in the gross income of the estate or such person, as the case may be, for the taxable period in which the transfer occurs, the fair market value of such right at the time of such transfer plus the amount by which any consideration for the transfer exceeds such fair market value. For purposes of this paragraph, the term "transfer" includes sale, exchange, or other disposition, or the satisfaction of an install- ment obligation at other than face value, but does not include transmission at death to the estate of the decedent or a transfer to a person pursuant to the right of such person to receive such amount by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent. (3) Character of income determined by reference to decedent The right, described in paragraph (1), to re- ceive an amount shall be treated, in the hands of the estate of the decedent or any person who acquired such right by reason of the death of the decedent, or by bequest, devise, or inheritance from the decedent, as if it had been acquired by the estate or such person in the transaction in which the right to receive the Income was originally derived and the amount includible in gross income under paragraph (1) or (2) shall be considered in the hands of the estate or such person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such amount. (4) Installment obligations acquired from decedent In the case of an installment obligation re- ceived by a decedent on the sale or other dis- position of property, the income from which was properly reportable by the decedent on the installment basis under section 453, if such obligation is acquired by the decedent's estate from the decedent or by any person by reason of the death of the decedent or by be- quest, devise, or inheritance from the dece- dent- (A) an amount equal to the excess of the face amount of such obligation over the basis of the obligation in the hands of the decedent (determined under section 453(d)) shall, for the purpose of paragraph (1), be considered as an item of gross income in re- spect of the decedent; and (B) such obligation shall, for purposes of paragraphs (2) and (3), be considered a right to receive an item of gross income in respect of the decedent, but the amount in- cludible in gross income under paragraph (2) shall be reduced by an amount equal to the basis of the obligation in the hands of the decedent (determined under section 453(d)). (b) Allowance of deductions and credit The amount of any deduction specified in sec- tion 162, 163, 164, 212, or 611 (relating to 4educ- tions for expenses, interest, taxes, and deple- tion) or credit specified in section 33 (relating to foreign tax credit), in respect of a decedent which is not properly allowable to the decedent in respect of the taxable period in which falls the date of his death, or a prior period, shall be allowed: (1) Expenses, interest, and taxes In the case of a deduction specified in sec- tions 162, 163, 164, or 212 and a credit speci- fied in section 33, in the taxable year when paid- (A) to the estate of the decedent; except that (B) if the estate of the decedent is not liable to discharge the obligation to which the deduction or credit relates, to the person who, by reason of the death of the decedent or by bequest, devise, or inheri- Page 479