77TH CONG. , 2D SESS.-CH. 619-OCT. 21 , 1942 "(W) DEDUCTIONS OF ESTATE, ETC., ON ACCOUNT OF DECEDENT'S DEDUCTIONS.- "(1) In the case of a person described in section 126 (b), the Pott,p. 83 amount of the deductions in respect of a decedent to the extent allowed by such subsection. "(2) In the case of a person described in section 126 (a), the n fra amount of the deductions in respect of a decedent to the extent allowed by section 126 (c)." Post,p.832. (e) The Internal Revenue Code is amended by inserting after section 125 the following new section: Ante, p. 8L "SEC. 126. 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 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 decedent'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 decedent's estate from the decedent; or "(C) the person who acquires from the decedent 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 receive an amount is transferred by the estate of the decedent or a person who receives 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 mar- ket value. For the purposes of this paragraph, the term 'trans- "Tramnfer." fer' includes sale, exchange, or other disposition, but does not include 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 receive 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 by which the decedent acquired such right; 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. 831 56 STAT.]
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