I ran across an interesting situation today...
An Alaskan resident who operates a sole proprietorship gold mining business passes away late in the year and everything is left to their sole heir. At the date of death we have gold that is already mined but not sold, gold in process, and gold not yet mined. The business continues to operate after the owner's death and the gold sale income is split and reported on the the final 1040 and first 1041 return, but no distributions were made to the heir.
In the second year, there is a large amount of gold that could be sold and the heir is finally looking at getting it sold and taking some distributions. What are the tax ramifications and considerations that should be made?
It appears that the "gold" represented in the three phases is actually inventory.
For estate valuation purposes, the fair market value needs to be determined for the "business" as of one of three dates, depending on which is most beneficial; 1) Date of Death; 2) Nine months afer date of death; 3) Alternative valuation date.
When the inventory is subsequently sold, the gross profit will be reduced as a result of the increased inventory valuation.
However, with regards to the gold already mined, but not yet sold, this could be considered income in respect of the decedent ("IRD") depending on the facts & circumstances on how immediately available it can be sold & value realized on the date of death.
answered 18 Nov '09, 18:04