The estate received fees for work the partner completed before death. Are those payments covered by a basis step-up?
Income in respect of a decedent generally does not receive the ordinary date-of-death basis step-up that eliminates later income.
By AE Tax Advisors Team · Updated October 28, 2026
Income in respect of a decedent generally does not receive the ordinary date-of-death basis step-up that eliminates later income. Partnership payments and unrealized receivables can require special classification under Sections 736 and 753. A buy-sell label does not settle whether a payment represents capital or service-related income.
A specific business-owner situation
An estate receives cash tied to a deceased partner's completed but uncollected service work. Treating every dollar as a sale of stepped-up partnership value may omit taxable income.
Illustrative example, not a client result.
What to establish before filing
- Identify what each payment compensates.
- Review partnership receivables and payment rules.
- Coordinate estate income and any applicable estate-tax deduction.
Which fact changes the answer?
A payment for the capital interest differs from income attributable to predeath services or qualifying partnership income items. The underlying rights matter.
A mistake to avoid
Do not apply a general basis-step-up assumption to every payment received after death.
Records that support the decision
- Buyout agreement.
- Uncollected fee ledger.
- Estate valuation and tax schedules.
The decision to document
Allocate the estate's receipts by tax character before reporting a single net buyout gain.
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Related questions
- Our founder died with unpaid salary and a declared dividend. Do both payments follow the same tax reporting?
- Does the price in our buy-sell agreement automatically establish the shares' estate-tax value?
Sources and editorial context
- Section 101: life-insurance proceeds and exceptions
- IRS Publication 559: estates and income in respect of a decedent
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.