In the year an individual passes away, the income they would have received that was not included in their final return is Income in Respect of a Decedent.

Per IRS Publication 559, Survivors, Executors, and Administrators, page 9:

Income in Respect of a Decedent

All income the decedent would have received had death not occurred that wasn't properly includible on the final return, discussed earlier, is income in respect of a decedent.

CAUTION! If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. This exclusion doesn't apply to certain income. For more information, see Pub. 3920.

How to Report

Income in respect of a decedent must be included in the income of one of the following:

• The decedent's estate, if the estate receives it.
• The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.
• Any person to whom the estate properly distributes the right to receive it.